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COPYRIGHT DEPOSIT. 







COMPLIMENTS OF 

JOHNSON & NORTH 

89 STATE ST., BOSTON 



TAXES AND RETURNS 


UNDER UNITED STATES AND MASSACHUSETTS LAWS 


BY 


FRANK A. NORTH of BOSTON BAR 


A Summary of the United States and Massachusetts 
Tax Laws affecting Individuals, Partner¬ 
ships and Corporations 


JOHNSON & NORTH, ATTORNEYS 
89 STATE STREET, BOSTON 






COPYRIGHT 

1918 

FRANK A. NORTH 




/ 

m -6 1918 

©GLA494 504 u 


n t c 


SUBJECTS 


PAGE 

I. TAXATION IN 1918 5 


II. TAX-PAYER’S CALENDAR 8 


III. THE DIFFERENT UNITED STATES TAXES 

1. Federal Income Tax 14 

2. Federal Undistributed Profits Tax 111 

3. Federal Excess Profits Tax 114 

4. Federal Capital Stock Tax 172 

5. Federal Estate Tax 174 

6. Federal Stamp Taxes 178 

7. Federal Miscellaneous War Taxes 178 


IV. THE DIFFERENT MASSACHUSETTS TAXES 

1. Massachusetts Income Tax 181 

2. Massachusetts Local Taxes 224 

3. Massachusetts Corporation Tax 225 

4. Massachusetts Inheritance Tax 247 


V. INDEX 


251 





























t 


*\ 


































TAXES AND RETURNS. 


5 


I 

TAXATION IN 1918. 

The Federal Tax Laws passed by the last Con¬ 
gress have established three records in tax legis¬ 
lation. 

1. They are the most difficult to understand and 
interpret of any tax laws heretofore enacted. 

2. They reach more than ten times as many 
people as have been taxed heretofore. 

3. They impose a tax burden which without ex¬ 
aggeration approximates bankruptcy in many cases 
where sufficient tax reserves have not been provided. 

The Massachusetts Tax Laws in force in 1918 are 
substantially the same as those in force in 1917. 

There is a probability, however, that the Corpor¬ 
ation Franchise Tax will during the year be suc¬ 
ceeded by an Income Tax. 

To Meet the Situation Squarely, the tax-payer has 
three immediate duties: 

1. To make an intelligent study of the Federal 
and State Tax Laws as applied to his own invest¬ 
ments and business. 

2. To prepare and file the required Tax Returns 
on time. 

3. To set up immediate tax reserves and to ad¬ 
just his investments and business so that taxes may 
be paid when due. 

The Tax-Payer Who Survives Will Have Done 
His Bit. 


6 


TAXES AND RETURNS. 


ANNUAL TAXES AND TAX RETURNS. 

INDIVIDUALS. 

Tax Return Due 

Federal Income Tax.March 1 

Federal Excess Profits Tax.March 1 

Federal List of Employees, etc., Paid $800.March 1 

Massachusetts Income Tax.March 1 

Massachusetts List of Employees Paid $1800-March 1 

Massachusetts List of Interest Payments.March 1 

Massachusetts Local Tax.May 15 

FIDUCIARIES. 

Federal Income Tax.March 1 

Massachusetts Income Tax.March 1 

Massachusetts List of Interest Payments.March 1 

PARTNERSHIPS. 

Tax Return Due 

Federal Income Tax by Individual Partners.March 1 

Federal Excess Profits Tax.March 1 * 

Federal List of Employees, etc., Paid $800.March 1 

Massachusetts Income Tax.March 1 

Massachusetts List of Employees Paid $1800.March 1 

Massachusetts List of Interest Payments.March 1 

Massachusetts Local Tax.May 15 

CORPORATIONS. 

Tax Return Due 

Federal Income Tax.March 1 

Federal Excess Profits Tax.March 1 

Federal Capital Stock Tax.July 31 

Federal Undistributed Profits Tax.July 31 

Federal List of Employees, etc., Paid $800.March 1 

Massachusetts Income Tax (after 1918).March 1 

Massachusetts Franchise Tax (1918')...April 10 

Massachusetts List of Employees Paid $1800.March 1 

Massachusetts List of Interest Payments.March 1 

Massachusetts Local Tax.May 15 


Where Tax Returns are based upon the fiscal year instead 
of upon the calendar year, they are due sixty days after the 
close of such fiscal year. 




























TAXES AND RETURNS. 


7 


IMPORTANCE OF TAX RETURNS. 

Tax Returns are the basis of taxation. They fur¬ 
nish the Federal and State tax officials not only 
with the data for assessment, but with information 
for the future relative to the investments and busi¬ 
ness affairs of the tax-payer. 

Blank forms for Tax Returns are sometimes 
mailed to the tax-payer, but failure to receive the 
same is never an excuse for failure to file the Re¬ 
turns on time. 

Federal and State tax laws, strictly speaking, 
require Returns only from those whose income 
exceeds certain specified amounts. 

Federal and State tax officials, however, fre¬ 
quently require written statements of income and 
expenses from tax-payers who, because of insuffi¬ 
cient income, have not filed Returns. 

The prudent tax-payer will find it easier in most 
cases to file Returns even though not legally re¬ 
quired to do so rather than await the Government’s 
demand for figures which may not at the time of 
such demand be fresh in mind. 

Copies of all Tax Returns should be retained for 
reference; they are certain to be needed. 


THE SCOPE OF THIS BOOK. 

This book contains a summary of the different 
United States and Massachusetts Tax Laws af¬ 
fecting individuals, partnerships and corporations, 
and is offered as a tax guide to those who are in¬ 
terested in present-day tax problems. 



8 


taxpayers' calendar. 


II. 

THE TAX-PAYER’S CALENDAR. 

JANUARY. At the beginning of the year the first 
duty of the tax-payer is to close his books and to 
determine through inventory or otherwise his 
profits or losses for the previous year. 

Inventory according to rulings by the Treasury 
Department should be taken at cost, or cost or mar¬ 
ket value, whichever is the less. 

Corporations during January should fix the sal¬ 
aries of officers and partners by appropriate votes. 
Partnerships must fix the salaries of partners by 
an agreement on the books made prior to March 
first, otherwise such salaries will not be allowed. 

Salaries to be allowed as deductions must be 
based upon actual services rendered and never upon 
stock holdings. 

FEBRUARY. The tax-payer during February 
should collect his data and prepare and file his vari¬ 
ous Tax Returns in anticipation of March first. 

Where extensions of time for filing Tax Returns 
are necessary by reason of absence or illness, such 
extensions should be applied for during February. 

MARCH. March 1 is the last day for filing calen¬ 
dar year Federal and State Tax Returns, viz.: 

UNITED STATES. MASSACHUSETTS. 
INDIVIDUALS. 

Income Tax Income Tax 

Excess Profits Tax List of Employees 

List of Employees, etc. and Interest Payments 


taxpayers' calendar. 


9 


PARTNERSHIPS. 

Income Tax Income Tax 

Excess Profits Tax List of Employees 

List of Employees, etc. and Interest Payments 

CORPORATIONS. 

Income T ax List of Employees 

Excess Profits Tax and Interest Payments 

List of Employees, etc. 

Corporations authorized to use their own fiscal 
year should file Tax Returns within sixty days from 
the close of such fiscal year. 

During March the tax-payer should have in mind 
certain matters in anticipation of Tax Day in Mass¬ 
achusetts, which is April first. (After 1918 corpora¬ 
tions will probably be taxed on an income basis.) 

(a) The investment of surplus in non-taxable se¬ 
curities. 

(b) Taxable stocks and bonds owned by a cor¬ 
poration on April first are taxed in Massachusetts 
on the principal, whereas the same stocks and 
bonds, if owned by an individual, would be taxed at 
six per cent, on the income. There is an advantage 
in individual ownership on April first. 

(c) A corporation’s undistributed earnings of the 
previous year, if invested in securities of the United 
States issued after September 1, 1917, will be tax- 
free in Massachusetts, and will not be subject to the 
Federal ten per cent, tax on undistributed earnings. 

(d) A corporation’s tangible property situated 
outside of Massachusetts will not be allowed as a 
deduction in determining the Massachusetts Cor¬ 
poration Tax unless it is actually taxed where sit- 


10 


taxpayers' calendar. 


uated. Tax-payers should see to it that such prop¬ 
erty is assessed locally on April first and that tax 
bills covering the same are submitted to the Massa¬ 
chusetts tax officials. 

(e) Cash and receivables of a Massachusetts cor¬ 
poration when situated in another State will not be 
allowed as a deduction unless the corporation has 
a place of business there and is taxed on the same 
where located. 

(f) Notes receivable owned by a Massachusetts 
corporation on April 1 are taxable. 

(g) Individuals and partnerships are taxed local¬ 
ly in Massachusetts on all tangible property owned 
on April first, including real estate, machinery, 
merchandise, automobiles, household furniture in 
excess of $1,000, libraries, jewelry, etc. 

APRIL. Massachusetts corporations are required 
to file their State Tax Returns between April 1 and 
April 10. Foreign corporations doing business in 
Massachusetts in 1918 will be required on April first 
to file lists of their tangible property located in the 
Commonwealth. 

MAY. Local tax returns of individuals and part¬ 
nerships showing real estate, machinery, merchan¬ 
dise, automobiles, household furniture, jewelry, li¬ 
braries and other tangible property owned on April 
1st should be filed in local cities and towns by 
May 15th. 

JUNE. Federal taxes based on March 1 Returns 
are payable June 15. 


taxpayers' calendar. 


11 


Undistributed earnings of the previous year be¬ 
come liable to the Federal ten per cent, tax on 
July first unless: 

(a) Actually invested and employed in the busi¬ 
ness. 

(b) Invested in securities of the United States 
issued after September 1, 1917. 

(c) Distributed in the form of dividends. 

JULY. Corporations are required to file their 
Federal Capital Stock Tax Return and probably 
their Undistributed Profits Tax Return during July. 

AUGUST. There are no important tax dates in 
August. 

SEPTEMBER. Massachusetts corporations re¬ 
ceive their State tax bills on September 20. Ten 
days only are allowed for an appeal, and no errors 
of valuation will be corrected after September 30. 
It is important that tax bills, when received, be 
promptly checked with the April 10th Tax Return 
in order that errors, if any, may be corrected. 

OCTOBER. Massachusetts Local Tax bills are 
sent out in October, and are usually payable No¬ 
vember 1. Massachusetts corporation taxes are 
payable October 20. 

NOVEMBER. There are no important tax dates 
in November. 

DECEMBER. December marks the close of the 
calendar year for purposes of the Federal Income 


12 


taxpayers' calendar. 


and Excess Profits Tax and the Massachusetts In¬ 
come Tax. 

The following matters should receive considera¬ 
tion during December where Returns are made 
based upon the calendar year and during the last 
month of the tax-payer’s fiscal year where Returns 
are based upon such fiscal year: 

(a) Paper profits and losses cannot be included in 
Returns under Federal or Massachusetts Tax Laws, 
but where sales are made, even though followed by 
immediate repurchase, an actual profit or loss may 
be established and included in the Return. Such 
losses, however, will not be allowed in excess of 
profits in similar transactions. 

(b) Losses in trade and depreciation in order to 
be allowed as a deduction under Federal and Mass¬ 
achusetts Tax Laws must have actually occurred 
and been charged off on the books during the year. 

(c) Capitalizing indebtedness or the sale of Treas¬ 
ury or new stock increases invested capital for pur¬ 
poses of the Excess Profits Tax. 

(d) The amount of interest allowed as a deduc¬ 
tion depends upon the amount of issued capital 
stock and interest-bearing indebtedness outstand¬ 
ing at the close of the year. 

(e) Capitalizing surplus earned since March 1, 
1913, is treated as a stock dividend under Federal 
Law, and results in the stockholders being obliged 
to pay an additional surtax. 

(f) So-called Bonus or Profit-sharing among em¬ 
ployees, if actual compensation for services rend- 


taxpayers' calendar. 


13 


ered, is an allowable deduction to the employer. 
It is income to the employee. Where the payment 
is a mere gift, it cannot be deducted by the em¬ 
ployer, and need not be returned by the employee. 

(g) Additional salaries paid at the end of the 
year, provided the total amount for the year does 
not exceed fair compensation, will be allowed as a 
deduction, but not otherwise. Where salaries are 
based on stockholdings they are treated as divi¬ 
dends. 


14 


FEDERAL INCOME TAX. 


III. 

THE DIFFERENT UNITED STATES TAXES. 

(1) FEDERAL INCOME TAX. 

BRIEF On August 5, 1909, the Congress 

HISTORY. enacted the Corporation Excise 
Tax, so-called, which levied a tax of 
one per cent, on corporate net income for each tax¬ 
able calendar or fiscal year in excess of $5,000. 

On February 25, 1913, the sixteenth Amendment 
to the Constitution of the United States authoriz¬ 
ing the Congress to establish an Income Tax was 
ratified by the States. 

On October 3, 1913, the Congress enacted the first 
constitutional Federal Income Tax, levying a tax 
of one per cent, on annual net income of individuals 
and corporations with a graduated sur-tax on in¬ 
dividual incomes in excess of $20,000. 

On September 8, 1916, the Congress revised the 
Income Tax Law by increasing the normal tax on 
individuals to two per cent., with a graduated sur¬ 
tax on incomes in excess of $20,000, and increasing 
the corporation tax to two per cent. This Act is 
still in force. 

On October 3, 1917, the Congress enacted an ad¬ 
ditional Income Tax Law imposing a graduated 
sur-tax on incomes of individuals in excess of 
$5,000 and increasing the individual rate by an ad- 


FEDERAL INCOME TAX. 


15 


ditional two per cent, and the corporation rate by 
an additional four per cent. 

The exemption of $4,000 allowed a married indi¬ 
vidual or head of a family, and of $3,000 allowed a 
single individual under the Act of September 8, 
1916, was reduced to $2,000 and $1,000 respectively 
for the purposes of the later Act. 

The requirement for filing Returns where the net 
income was $3,000 or over under the Act of Sep¬ 
tember 8, 1916, was reduced to $2,000 for a married 
individual or head of a family, and $1,000 for a 
single individual for the purposes of said later Act. 

The following table shows the changes in the 
Federal Income Tax Law since its first enactment 
in 1913. Column one shows the year and amount 
of net income which required a Return; the second 
column shows the years in which dividends were 
required to be included in the Return; the remain¬ 
ing columns are self-explanatory: 


Return 

Dividends 

Exemp¬ 
tion Normal 

Surtax 

Corpor¬ 

ation 

1913 $2500 

Exclude 

3000/4000 

1% 

$20000 

1% 

1914 3000 

Exclude 

3000/4000 

1% 

20000 

1% 

1915 3000 

Exclude 

3000/4000 

1% 

20000 

1% 

1916 3000 

Include 

3000/4000 

2% 

20000 

2% 

1917 1000/2000 Include 

3000/4000 

2% 

20000 

2% 

1000/2000 Include 

1000/2000 

2% 

5000 

4% 


WHO ARE SUBJECT TO THE TAX 


The Federal Income Tax Law affects each of the 
following classes: 

(a) Individuals, including members of a partner¬ 
ship having a net taxable income for the year of 
$1,000 or more derived from salaries, business, 


16 


FEDERAL INCOME TAX. 


trade, profession, from taxable investments, or 
from sales or dealings in property. 

(b) Administrators, executors, trustees, and other 
persons acting in a fiduciary capacity where the 
net taxable income accrued or paid to any unmar¬ 
ried beneficiary is $1,000 or more, or to any mar¬ 
ried beneficiary is $2,000 or more during the year. 

(c) Corporations organized for profit, whatever 
their income. 

Corporations not organized for profit, such as 
religious, charitable, scientific, and educational 
corporations, social clubs, fraternal beneficiary so¬ 
cieties or orders operating under the lodge sys¬ 
tem, etc., are exempt from the Income Tax Law 
provided they obtain an Exemption Certificate from 
the Collector. 

HOW THE TAX IS FIGURED. 

INDIVIDUALS. The Federal Income Tax pay¬ 
able by individuals is based 
both upon the Act of 1916 and the Act of 1917, and 
is as follows: 

(a) Normal tax of two per cent., Act of 1916, 
upon taxable net income in excess of $3,000 for a 
single individual and of $4,000 for a married indi¬ 
vidual or head of a family, with a deduction of $200 
for each dependent child under eighteen years of 
age. 

(b) Progressive surtax, Act of 1916, upon tax¬ 
able net income in excess of $20,000. 


FEDERAL INCOME TAX. 


17 


(c) Normal tax of two per cent., Act of 1917, 
upon taxable net income in excess of $1,000 for a 
single individual and of $2,000 for a married indi¬ 
vidual or head of a family, with a deduction of $200 
for each dependent child under eighteen years of 
age. 

(d) Progressive surtax, Act of 1917, upon tax¬ 
able net income in excess of $5,000. 

(e) Normal taxes are credited with dividends re¬ 
ceived. 

(f) The total tax is credited, viz.: 

(*) With contributions to charity which do not 
exceed fifteen per cent, of the taxable net income; 

( 2 ) With two per cent, withheld at source on 
coupons from tax-free covenant bonds; 

( 3 ) With the amount of Excess Profits Tax, if 
any, to be paid by the tax-payer for the current tax 
year. 

PARTNERSHIPS. Partnerships, as such, are not 
required to file Federal In¬ 
come Tax Returns unless notified to do so by the 
Collector; the individual partners, however, are re¬ 
quired to include their partnership income in their 
individual Returns. 

CORPORATIONS. The Federal Income Tax 
payable by corporations is as 

follows: 

(a) Tax of two per cent., Act of 1916, and an ad¬ 
ditional tax of four per cent., Act of 1917, making 
six per cent, in all. It is based upon the net tax¬ 
able income for the calendar or fiscal year. 


18 


FEDERAL INCOME TAX. 


In computing the additional four per cent, tax, 
corporations may deduct dividends received from 
other taxable corporations. 

In computing the entire six per cent, tax., cor¬ 
porations may deduct an amount equal to their Fed¬ 
eral Excess Profits Tax for the same year. 

(b) Undistributed Profits Tax of ten per cent, 
upon current net income, if any, remaining undis¬ 
tributed six months after the close of the calendar 
or fiscal year. See “Federal Undistributed Profits 
Tax.” 


FEDERAL INCOME TAX. 


19 


FEDERAL INDIVIDUAL INCOME TAX OF A MAR¬ 
RIED MAN OR HEAD OF A FAMILY UNDER 
LAWS OF 1916 AND 1917 IN DOLLARS AND IN 
PER CENT., NO DEDUCTION FOR DIVIDENDS. 



Under Law of 
Sept. 8, 1916 

Under Law of 
Oct. 3. 1917 

Total Tax 

Income 

Amount 

Percent 

Amount 

Percent 

Amount 

Percent 

$ 2,000 

$ 00 

$ 00 

$ 00 

$ 00 

$ 00 

$ 00 

3,000 

00 

00 

20 

.67 

20 

.67 

4,000 

00 

00 

40 

1.00 

40 

1.00 

5,000 

20 

.40 

60 

1.20 

80 

1.60 

10,000 

120 

1.20 

235 

2.35 

355 

3.55 

15,000 

220 

1.47 

510 

3.40 

730 

4.87 

20,000 

320 

1.60 

860 

4.30 

1,180 

5.90 

25,000 

470 

1.88 

1,310 

5.24 

1,780 

7.12 

30,000 

620 

2.07 

1,760 

5.87 

2,380 

7.94 

35,000 

770 

2.20 

2,210 

6.31 

2,980 

8.50 

40,000 

920 

2.30 

2,660 

6.65 

3,580 

8.95 

45,000 

1,120 

2.49 

3,260 

7.24 

4,380 

9.73 

50,000 

1,320 

2.64 

3,860 

7.72 

5,180 

10.36 

55,000 

1,520 

2.76 

4,460 

8.11 

5,980 

10.87 

60,000 

1,720 

2.87 

5,060 

8.43 

6,780 

11.30 

65,000 

1,970 

3.03 

5,860 

9.02 

7,830 

12.05 

70,000 

2,220 

3.17 

6,660 

9.51 

8,880 

12.68 

75,000 

2,470 

3.29 

7,460 

9.95 

9,930 

13.24 

80,000 

2,720 

3.40 

8,260 

10.32 

10,980 

13.72 

85,000 

3,020 

3.55 

9,260 

10.90 

12,280 

14.45 

90,000 

3,320 

3.69 

10,260 

11.40 

13,580 

15.09 

95,000 

3,620 

3.81 

11,260 

11.85 

14,880 

15.66 

100,000 

3,920 

3.92 

12,260 

12.26 

16,180 

16.18 

110,000 

4,620 

4.20 

14,660 

13.33 

19,280 

17.53 

125,000 

5,670 

4.54 

18,260 

14.61 

23,930 

19.15 

135,000 

6,370 

4.72 

20,660 

15.30 

27,030 

20.02 

150,000 

7,420 

4.95 

24,260 

16.17 

31,680 

21.12 

175,000 

9,420 

5.38 

31,010 

17.72 

40,430 

23.10 

200,000 

11,420 

5.71 

37,760 

18.88 

49,180 

24.59 

225,000 

13,670 

6.08 

45,760 

20.34 

59,430 

26.42 

250,000 

15,920 

6.37 

53,760 

21.50 

59,680 

27.87 

275.000 

18,420 

6.70 

62,760 

22.82 

81,180 

29.52 

300,000 

20,920 

6.97 

71,760 

23.92 

92,680 

30.89 

350,000 

26,420 

7.55 

91,260 

26.07 

117,680 

33.62 

400,000 

31,920 

7.98 

110,760 

27.69 

142,680 

35.67 

450,000 

37,420 

8.32 

130,260 

28.94 

167,680 

37.26 

500.000 

42,920 

8.58 

149,760 

29.95 

192,680 

38.53 

550,000 

48,920 

8.89 

170,760 

31.05 

219,680 

39.94 

600,000 

54,920 

9.15 

191,760 

31.96 

246,680 

41.11 

650,000 

60,920 

9.37 

212,760 

32.73 

273,680 

42.10 

700,000 

66,920 

9.56 

233,760 

33.39 

300,680 

42.95 

750,000 

72,920 

9.72 

254,760 

33.97 

327,680 

43.69 

800,000 

78,920 

9.87 

278,260 

34.78 

357,180 

44.65 

850,000 

84,920 

9.99 

301,760 

35.50 

386,680 

45.49 

900,000 

90,920 

10.10 

325,260 

36.14 

416,180 

46.24 

950,000 

96,920 

10.20 

348,760 

36.71 

445,680 

46.91 

1,000,000 

102,920 

10.29 

372,260 

37.23 

475,180 

47.52 


20 


FEDERAL INCOME TAX. 


COMPUTATION OF SURTAX. 


Amount of 

Amount 
subject to 
surtax at 

Rate 

Amount of 
surtax at 

Total 
surtax on 

net income 

rate shown 


each rate 

each 

A 

in Col. C. 

B 

c 

D 

amount 

E 

$ 5,000 

$ 000 

0% 

$ 00 

$ 00 

7,500 

2,500 

1% 

25 

25 

10,000 

2,500 

2% 

50 

75 

12,500 

2,500 

3% 

75 

150 

15,000 

2,500 

4% 

100 

250 

20,000 

5,000 

5% 

250 

500 

40,000 

20,000 

8% 

1,600 

2,100 

60,000 

20,000 

12% 

2,400 

4,500 

80,000 

20,000 

17% 

3,400 

7,900 

100,000 

20,000 

22% 

4,400 

12,300 

150,000 

50,000 

27% 

13,500 

25,800 

200,000 

50,000 

31% 

15,500 

41,300 

250,000 

50,000 

37% 

18,500 

59,800 

300,000 

50,000 

42% 

21,000 

80,800 

500,000 

200,000 

46% 

92,000 

172,800 

750,000 

250,000 

50% 

125,000 

297,800 

1,000,000 

250,000 

55% 

137,500 

435,300 

1,500,000 

500,000 

61% 

305,000 

740,300 

2,000,000 

500,000 

62% 

310,000 

1,050,300 

Over 2,000,000 

63% 


COMPUTATION. 

1. Largest sum in Column A which is less than 

the amount of the total net income.$. 

2. Total surtax thereon shown in Column E... $. 

3. Remainder of net income after subtracting 

Item 1, above. $. 

4. Surtax on this remainder at rate shown in 

Column C on line below that from which 

Item 1 was taken. $. 

5. Total surtax due (sum of Items 2 and 4)... $. 











FEDERAL INCOME TAX. 


21 


SURTAX RATES, 1913—1916. 


Act of 

October 3, 

1913. 

Act of September 6, : 

1916. 

$ 20,000 

$ 50,000 

1% 

$ 20.000 

$ 40.000 

1% 

50.000 

75,000 

2% 

40,000 

60000 

2 % 

75,000 

100.000 

3% 

60,000 

80.000 

3 % 

100 000 

250 000 

4 % 

80,000 

100,000 

4 % 

250,000 

500,0000 

5% 

100,000 

150,000 

5% 

Over $500,000 

6% 

150.000 

200.000 

6% 




200.000 

250 000 

7% 




250,000 

300.000 

8% 




300,000 

350,000 

9% 


FEDERAL INDIVIDUAL INCOME TAX IN DOL¬ 
LARS, NO DEDUCTION FOR DIVIDENDS. 


Annual 

Single 

Married 
Man or 

Annual 

Single 

Married 
Man or 

Income 

Man 

Head of 

Income 

Man 

Head of 

$ 1.000 

$ 00 

Family 
$ 00 

$ 31.000 

$ 2,540 

Family 

$ 2,500 

2,000 

20 

00 

32,000 

2.660 

2,620 

3,000 

40 

20 

34.000 

2,900 

2,860 

4,000 

80 

40 

33,000 

2,780 

2.740 

5,000 

120 

80 

35.000 

3,020 

2,980 

6,000 

170 

130 

36.000 

3,140 

3,100 

7,000 

220 

180 

37,000 

3,260 

3,220 

8,000 

275 

235 

38,000 

3.380 

3,340 

9.000 

335 

295 

39.000 

3,500 

3.460 

10,000 

395 

355 

40,000 

3,620 

3,580 

11000 

465 

425 

41 000 

3,780 

3.740 

12.000 

535 

495 

42,000 

3,940 

3,900 

13 000 

610 

570 

43,000 

4,100 

4.060 

14.000 

690 

• 650 

44,000 

4 260 

4,220 

15.000 

770 

730 

45.000 

4,420 

4,380 

16.000 

860 

820 

46.000 

4,580 

4,540 

17,000 

950 

910 

47.000 

4 740 

4 700 

18 000 

1.040 

1,000 

48,000 

4,900 

4,860 

19000 

1,130 

1090 

49,000 

5,060 

5.020 

20.000 

1,220 

1,180 

50,000 

5 220 

5.180 

21.000 

1,340 

1,300 

60.000 

6,820 

6.780 

22,000 

1,460 

1.420 

70.000 

8,920 

8,880 

23.000 

1,580 

1,540 

75 000 

9,970 

9,930 

24.000 

1.700 

1,660 

80.000 

11.020 

10,980 

25,000 

1,820 

1.780 

90.000 

13.620 

13,580 

26.000 

1.940 

1,900 

100.000 

16 220 

16,180 

27.000 

2,060 

2 020 

200.000 

49,220 

49,180 

28,000 

2,180 

2,140 

300.000 

92.720 

92,680 

29,000 

2,300 

2.260 

500,000 

192.720 

192.680 

30,000 

2,420 

2,380 

1,000,000 

475,220 

475,180 


22 


FEDERAL INCOME TAX. 


TAX RETURNS REQUIRED. 

INDIVIDUALS. Every unmarried individual, a 
citizen or resident of the United 
States, having a net taxable income for the calendar 
year of $1,000, and every married individual or head 
of a family having a net taxable income of $2,000, 
is required to file a Federal Income Tax Return. 
See “Husband and Wife.” 

PARTNERSHIPS. Partnerships, as such, are not 
required to file Income Tax 
Returns except when requested to do so by the 
Collector. 

FIDUCIARIES. Every Executor, Administrator, 
Guardian, Conservator, Trustee 
or other fiduciary should file a Return where the 
net income accrued or paid to any unmarried bene¬ 
ficiary is $1,000 or over, or to a married beneficiary 
or head of a family is $2,000 or over. See “Fidu¬ 
ciaries.” 

CORPORATIONS. Every taxable business cor¬ 
poration in existence during 
any part of the calendar year and whether or not 
engaged in business must file a Corporation Re- 

turn - ' 'MSP1 

INFORMATION Every individual, firm or cor- 
AT SOURCE. poration which during the year 
paid to another person salary, 
wages, interest, commissions, rentals, etc., of $800 


FEDERAL INCOME TAX. 


23 


or more is required to make a Return showing the 
nature and source of such payments and the name 
and address of the person receiving them. 

WHEN AND Federal Income Tax Returns 
WHERE FILED, are filed on or before March 
first in each year when based 
on the calendar year or sixty days after the close of 
the fiscal year when fiscal year Returns have been 
authorized by the Collector. 

The Returns are filed with the Collector of the 
District where the tax-payer resides or has a place 
of business. 


24 


FEDERAL INCOME TAX. 


FEDERAL INCOME TAX — INDIVIDUAL 
(Under $3,000.) 

Figures Required for March First Returns. 

1. Name and Home Address 

2. Name of Wife 

3. Names of Children under 18 

4. Name and Address of Employer 

5. Income Received from 

(a) Salary or Wages 

(b) Bank Deposits, including Savings Banks 

(c) Interest on Notes and Mortgages 

(d) Interest on all Taxable Bonds 

(e) Dividends 

(f) Rents and Royalties 

(g) Other Income 

6. Income Received from 

(a) A Business (Gross Sales) 

(b) A Profession (Gross Fees) 

(c) A Partnership 

(d) A Fiduciary 

7. Inventory January 1 and December 31 

8. Business or Professional Expense: 

(a) Wages 

(b) Merchandise Purchases 

(c) Supplies 

(d) Rent 

(e) Repairs 

(f) Taxes 

(g) Interest 

(h) Losses Shown by Inventory 

(i) Contributions to Charity 

(j) Uninsured Fire, etc., Losses 

(k) Depreciation 

(l) Other Expense 

9. Net Profits from Dealings Outside of Business 


FEDERAL INCOME TAX. 


25 


FEDERAL INCOME TAX—INDIVIDUAL 
(Over $3,000.) 

Figures Required for March First Returns. 

1. Name and Home Address 

2. Names of Wife and Children under 18 

3. Name and Address of Employer 

4. (a) Salary, Wages, Commissions and Profes¬ 

sional Income 

(1) Gross Salary, Wages and Commissions 

(2) Gross Professional Income 

(3) Professional Expense 

(a) Wages 

(b) Rent 

(c) Taxes on Business and Business Proper¬ 

ty (except Excess Profits Tax) 

(d) Interest on Business Indebtedness 

(e) Depreciation 

(f) Losses on Business Property (Uninsured) 

(g) Office and Other Business Expenses 

(4) Excess Profits Tax of 8 % on Salaries over 

$ 6 , 000 . 

(b) Individual Business 

(1) Gross Sales 

(2) Cost of Goods Sold 

(a) Wages and Salaries 

(b) Merchandise Bought for Sale 

(c) Material and Supplies Bought 

(d) Other Costs 

(e) Inventory January 1 

(f) Inventory December 31 


26 


FEDERAL INCOME TAX. 


(g) Rent Paid 

(h) Interest Paid on Business Indebtedness 

(i) Taxes on Business and Business Prop¬ 

erty (except Excess Profits Tax) 

(j) Depreciation 

(k) Losses on Business Property (Unin¬ 

sured) 

(l) Bad Debts (Business) 

(m) Other Business Expenses 

(c) Profits on Sales Outside of Business 

(1) Sale Price 

(2) Original Cost or Market Value March 1, 

1913 

(3) Cost of Improvements 

(4) Depreciation Previously Allowed 

(d) Income from Rents and Royalties 

(1) Kind of Property 

(2) Name and Address of Lessee 

(3) Rent Received 

(4) Repairs, Depreciation and Uninsured 

Losses 

(5) Interest Paid on Rented Property 

(6) Taxes Paid on Rented Property 

(7) Other Expenses on Rented Property 

(e) Interest Received on Taxable U. S. Bonds 

(f) Dividends Received and Year Accumulated 

(g) Interest Received on Tax Free Covenant Bonds 

(h) Other Income 

(1) Income Received from a Partnership 

(2) Income Received from a Fiduciary 

(3) Interest on Bonds 


FEDERAL INCOME TAX. 


27 


(4) Dividends and Interest from Corporations 

Outside of U. S. 

(5) Interest on Notes, Bank Deposits and 

Mortgages 

(i) Personal Deductions 

(1) Interest on Personal Indebtedness 

(2) Taxes Paid 

(j) Excess Profits Tax to be Deducted 

(k) Contributions to Charity. 

Note:—If wife has separate income the same 
information is required from her. 


28 


FEDERAL INCOME TAX. 


FEDERAL INCOME TAX—CORPORATIONS. 
Figures Required for March 1 Returns. 

Name and Principal Office 

Kind of Business Date of Incorporation 

1. Amount of Paid in Capital Stock, Dec. 31 

2. Amount of Interest Bearing Indebtedness, 

Dec. 31. 

3. (a) Gross Sales 

(b) Income from Rents 

(c) Income from Interest 

(d) Income from Dividends and Year Earned 

(e) Other Income 

4. (a) Merchandise Purchases or Cost of Goods 

Sold 

Inventory Jan. 1 (at cost, or cost or mar¬ 
ket value, whichever is the lower) 
Inventory Dec. 31 (at cost, or cost or mar¬ 
ket value, whichever is the lower) 

(b) Expenses 

(1) Salaries of Officers, if Increased State 
Basis 

(2) Wages 

(3) Rent 

(4) Repairs 

(5) Other Expenses (Except Losses, De- 
. preciation, Taxes and Interest) Classify 

Items 

5. (a) Losses (Uninsured) 

Bad Debts (if previously returned as in¬ 
come) 

(b) Depreciation 

(c) Depletion 

6. Interest Paid 

7. Taxes Paid (except Federal Taxes) 

8. Excess Profits Tax 

9. Net Income for 1916 

10. Income Tax for 1916 Paid in 1917 

11. Income of 1916 Undistributed on June 30, 1917 

12. Income of 1916 Undistributed on Dec. 31, 1917 

13. Surplus Dec. 31, 1917 


ALPHABETICAL SUMMARY 


29 


ALPHABETICAL SUMMARY OF THE LAW. 

ACCIDENT Money received on accident poli- 
INSURANCE. cies, less premiums paid, should be 
returned as income. See “Insur¬ 
ance.” 

ADMINSTRATORS. See “Fiduciaries.” 

ALIMONY. Alimony paid is a personal expense 
and not a deduction. Alimony re¬ 
ceived should be returned as income. 

ANNUITIES. An individual purchasing an annu¬ 
ity for himself should include the 
annuity received as income. Where an individual 
purchases an annuity for another, the latter need 
not return it as income. 

AUTOMOBILE. The expense of an automobile 
used in business is a proper 
business expense, and may be deducted; otherwise, 
when used for pleasure driving. 

BAD DEBTS. Bad debts incurred and charged 
off during the year are a deduction. 

BENEFICIARIES. Beneficiaries should make the 
same Returns as individuals. 
The fact that the Fiduciary has made a return does 
not excuse the beneficiary. The Return should in¬ 
clude all taxable income. 


30 


FEDERAL INCOME TAX. 


BLANK FORMS. Blank Forms for Returns may 
be obtained from the Collector. 
They are usually sent by mail to individuals and 
corporations who have made Returns in previous 
years, but failure to receive the blank forms is not 
an excuse for failure to file the Returns on time. 

BONDS. Income from corporation bonds is tax¬ 
able and should be returned. See “Cou¬ 
pons.” 

Income from State and Municipal bonds is 
exempt. 

Income from United States bonds, certificates of 
indebtedness or other Federal obligations is exempt 
except as below stated: 

Liberty bonds (3!/2%) are entirely tax exempt. 
Liberty bonds (4%) are tax exempt where there 
is a single holding not in excess of $5,000; holdings 
in excess of $5,000 are taxable. 

A husband and wife may each hold up to $5000 
of Liberty bonds (4%) without taxation thereon. 

BONUS. See “Salaries.” 

CHARITIES. Contributions to charitable associ¬ 
ations or corporations (not indi¬ 
viduals) may be deducted up to 15% of net income. 

CLUBS. Annual dues received by clubs are not 
subject to the Federal Income Tax pro¬ 
vided the club has filed its Exemption affidavit with 
the Collector. They are, however, subject to the 
10% Federal War Tax where they exceed $12 per 
year. 


ALPHABETICAL SUMMARY 


31 


COMMISSIONS. A commission received by an 
individual as compensation for 
his services is treated as salary, and should be re¬ 
turned as income. A commission paid an employee 
as compensation for services or paid to an agent for 
collecting rents or managing property is a business 
expense, and may be deducted. A commission paid 
to a broker in connection with the sale of property 
is a part of the selling price. 

CONSERVATORS. See “Fiduciaries.” 

CONTRIBUTIONS. See “Charities.” 

CO-OPERATIVE BANKS. See “Interest.” 

CORPORATIONS. Corporations, except those 
certified by the Collector as 
exempt pay a tax on their net taxable income of two 
per cent. (Act of 1916) and four per cent. (Act of 
1917). They also pay a tax of ten per cent, on their 
net profits remaining undistributed after six months 
from the close of their calendar or fiscal year. There 
is no sur-tax. 

See “Federal Undistributed Profits Tax.” 

Non-taxable corporations are labor, agricultural 
or horticultural associations, mutual savings banks, 
fraternal beneficiary societies operating under the 
lodge system, domestic building and loan associa¬ 
tions, co-operative banks, cemetery corporations, 
business leagues, chambers of commerce, boards of 
trade, clubs, farmers’ mutual insurance companies, 
corporations holding property for another which is 


32 


FEDERAL INCOME TAX. 


tax exempt, Federal loan banks and farm loan as¬ 
sociations. 

Taxable The taxable income of a corporation is its 
Income, gross income from all sources,.less cer¬ 
tain deductions. 

Gross income which must be returned includes: 

(a) Gross profit from the business. 

(b) Income from rentals, interest and dividends, 
except dividends on the stock of taxable corpora¬ 
tions. 

(c) Income from any other source. 

Deductions The deductions allowed a corporation 
Allowed. are: 

(a) The necessary expense of carrying on the 
business, such as salaries, wages, fuel, light, rent 
and repairs, but not including purchases. 

(b) Losses in trade which have occurred dur¬ 
ing the year and which are actually charged off on 
the books and have not been compensated by in¬ 
surance. 

(c) Depreciation on tangible property to a rea¬ 
sonable amount actually incurred during the year 
and charged off on the books. 

(d) Interest paid on indebtedness to an amount 
equal to but not exceeding the paid-up capital stock 
plus one-half of the interest bearing indebtedness 
outstanding at the close of the year. 

(e) Taxes paid, except Income and Excess 
Profits Taxes. 


ALPHABETICAL SUMMARY 


33 


Credits. Taxable corporations are allowed a 
credit of the Excess Profits Tax for 
the same year. 

Deductions The following items cannot be de- 
Not Allowed, ducted: 

(a) Income and Excess Profits Taxes. See 
“Credits.” 

(b) Taxes assessed against local benefits. 

(c) Cost of new buildings and permanent im¬ 
provements. 

(d) Losses covered by insurance. 

(e) Loss or depreciation not actually sustained 
and charged off during the year. 

(f) Gifts to charity or to employees. 

Dividends. See “Dividends.” 

Holding Corporations holding stock of other 
Companies, corporations may for purposes of the 
four per cent, tax (Act of 1917) de¬ 
duct dividends received from taxable corporations. 
They cannot, however, deduct dividends received 
in computing the two per cent, tax (Act of 1916). 

Information Corporations making payments of 
at Source. interest, rent, salaries, wages, pre¬ 
miums, annuities, or other fixed or 
determinable gains, profits or income of eight hun¬ 
dred dollars or more in any tax year must file an 
“Information at Source” Return of the names and 
addresses of the recipients and the amounts paid 


34 


FEDERAL INCOME TAX. 


to them. They must also furnish on demand from 
the Collector the names and addresses of their 
stockholders, the number of shares owned, the 
amount of dividends paid and the years in which 
such dividends were earned. 

New Corporations organized during the 

Corporations, year must file Returns covering the 
balance of the year. 

Payment. The Income Tax of corporations is pay¬ 
able June 15 except when based upon a 
fiscal year Return, in which case it is payable one 
hundred and sixty-five days after the close of such 
fiscal year. 

Reorganization. See “Reorganization.” 

Returns. The Return of Net Income is due 

on or before March 1 except 
where based on the fiscal year, when it is due within 
sixty days after the close of such fiscal year. 

Corporations desiring to make fiscal year Re¬ 
turns should obtain the permission of the Collector. 

COUPONS. Individuals depositing coupons from 
taxable bonds should file Ownership 
Certificates with the bank of collection. No ex¬ 
emption should be claimed except in the case of 
bonds containing a tax free covenant clause. 

In the case of United States, State, County or 
Municipal bonds, the income from which is ex¬ 
empt, no ownership certificate is required. 


ALPHABETICAL SUMMARY 


35 


Tax Free. Corporations issuing tax free covenant 
bonds withhold and pay 2°Jo at source 
unless the owner of the coupons files an exemption 
claim. 

CUSTOM DUTIES. Custom duties when paid 
by an individual are con¬ 
sidered as taxes; when paid by an importer are 
considered as part of the cost price of goods. 

DAMAGES. Damages received for personal in¬ 
juries should be returned as income. 

DEDUCTIONS (a) Agent's commission paid for 
ALLOWED. caring tor property. 

(b) Business and professional 

expense. 

(c) Custom duties paid by an individual. 

(d) Depreciation of business property to a rea¬ 
sonable amount. 

(e) Dividends received by an individual who is 
subject to the normal taxes only. 

(f) Dividends received by a corporation from an¬ 
other corporation subject to the Income Tax. 

(g) Fire insurance premiums. 

(h) Fire and other losses not compensated by in¬ 
surance. 

(i) Gifts to charitable, religious and educational 
institutions not exceeding 15% of the net income. 

(j) Interest paid by an individual on his indebt¬ 
edness, except indebtedness on account of the pur- 


36 


FEDERAL INCOME TAX. 


chase of non-taxable securities other than Liberty 
Bonds. 

(k) Interest paid by a corporation on an amount 
equal to its capital stock plus one-half its interest- 
bearing indebtedness at the end of the year. 

(l) Losses when sustained “in trade” and actu¬ 
ally charged off on the books during the year. 

(m) Losses on sales of capital assets not to ex¬ 
ceed gains in similar transactions. 

(n) Pensions paid to retired employees. 

(o) Rent paid for business purposes. 

(p) Repairs on rented property. 

(q) Taxes paid except against local benefits and 
except Income and Excess Profits Taxes. 

Credits. After net income is determined for pur¬ 
poses of the normal tax a credit is al¬ 
lowed equal to the Excess Profits Tax for the same 
year. 

See also “Exemptions.” 

DEDUCTIONS (a) Alimony paid. 

NOT ALLOWED, (b) Assessments paid on cor¬ 
poration stock. 

(c) Fire insurance premiums on owner’s house. 

(d) Gifts to employees. 

(e) Interest paid by an individual on indebted¬ 
ness in connection with the purchase of non-tax¬ 
able securities. 

(f) Living and family expenses. 

(g) Losses compensated by insurance. 

(h) Permanent improvement expense. 


ALPHABETICAL SUMMARY 


37 


(i) Premiums paid on life insurance. 

(j) Premiums paid on insurance on lives of of¬ 
ficers or employees. 

(k) Rent of owner’s house occupied by owner. 

(l) Repairs on owner’s house occupied by owner. 

(m) Taxes against local benefits and Income and 
Excess Profits Taxes. 

DEPRECIATION. Depreciation relates only to 
physical property employed in 
a business, and not to a decrease in value of stocks 
or other securities. 

Where depreciation is claimed, the return must 
state the original cost of the property, its probable 
life, and the amount, if any, charged off in previous 
years. 

Depreciation must be actually charged off on the 
books. 

Depreciation on an individual’s own house or on 
that of his wife where the house is occupied by the 
owner is not an allowable deduction, although 
where the house is rented to a third party depreci¬ 
ation is allowed. 

DIRECTORS’ Directors’ fees should be returned 
FEES. as income. 

DISSOLVED Corporations which are dis- 

CORPORATIONS. solved during the year are 
required to make a Return 
covering the period between January first and the 
date of dissolution. 


38 


FEDERAL INCOME TAX. 


DIVIDENDS. Taxable dividends within the 
meaning of the Income Tax Law 
refer to any distribution by a corporation from sur¬ 
plus or earnings accrued since March 1, 1913, and 
whether in cash or stock. Dividends received be¬ 
tween March 1, 1913, and December 31, 1917, are 
taxable as of the year when they were earned. 

Dividends should be returned for the year in 
which they are received. 

Dividends paid in 1917 and thereafter are deemed 
to be made from the most recently accumulated un¬ 
divided profits or surplus. 

Dividends received by an individual are not sub¬ 
ject to the normal taxes but are subject to the sur¬ 
taxes. 

Dividends received by a corporation are not sub¬ 
ject to the two per cent, tax, Act of 1916. They 
may be deducted in figuring the four per cent, tax, 
Act of 1917. 

Dividends paid in Liberty bonds are regarded as 
cash dividends and are taxable income. 

Dividends so called paid by Life Insurance Com¬ 
panies are treated as a refund on premiums and are 
not taxable income. 

Stock Dividends when declared from earnings ac¬ 
cumulated after March 1, 1913, are taxable income. 

Stock Dividends on reorganization not based on 
a share for share exchange are taxable income to 
the extent of the excess over such even exchange. 

Corporations paying dividends should advise 


ALPHABETICAL SUMMARY 


39 


stockholders as to the year such dividends were 
earned as the tax follows the tax rate of such year. 

(Note.— The Supreme Court of the United States has de¬ 
cided that stock dividends from earnings prior to March 1, 
1913, are not “income” under the Act of 1913. The Commis¬ 
sioner of Internal Revenue states that this decision does not 
prevent stock dividends from earnings since March 1, 1913, 
being “income” under the Acts of 1916 and 1917.) 

EXAMINATION The Collector is authorized to 
OF BOOKS. examine the books and papers 

of an individual or corporation 
in order to ascertain whether or not a Return is re¬ 
quired and whether or not a Return filed complies 
with the Income Tax Law. 

EXCESS The Excess Profits Tax of 8% 

PROFITS TAX. over $6,000 on salaries and 
Nominal Capital is included in 
the Federal Income Return. 

EXEMPTIONS. Exemptions are to be distin¬ 
guished from Deductions. 

For Income which is Exempt see “Income Not to 
be Returned.” 

Gifts. Property acquired by gift, bequest, devise 
or descent is exempt, the income from such 
property, however, is taxable. 

Husband The head of a family or a married per- 
and Wife, son living with husband or wife has an 
exemption of $4,000 under the Act of 
1916 and of $2,000 under the Act of 1917. A hus- 


40 


FEDERAL INCOME TAX. 


band and wife living permanently apart are each 
entitled to the exemption allowed a single person. 
There is an exemption of $200 under each Act for 
each child under 18 years of age. 

The exemption is determined as of December 
31st. 

Insurance. Proceeds of life insurance policies paid 
to another person than the insured are 
not taxable. The same is true of dividends or re¬ 
turn premiums under life insurance, endowment or 
annuity contracts, except dividends from paid-up 
policies. They need not be returned. 

Interest. Interest on United States, State, County 
and Municipal bonds is not taxable and 
need not be returned. 

Salaries. Salaries of the present President, of Fed¬ 
eral Judges in office, October 3, 1917, 
and of all judges, officers and employees of a State 
or any political subdivision thereof are exempt. 

Unmarried An unmarried individual has an ex- 
Individual. emption of $3,000 under the Act of 
1916 and $1,000 under the Act of 1917. 

EXECUTORS. See “Fiduciaries.” 

FIDUCIARIES. Fiduciaries include administra¬ 
tors, executors, guardians, con¬ 
servators, trustees and other persons acting in a 
fiduciary capacity. They are required to file a 
Fiduciary Return in all cases where the net amount 
of income accrued or paid to any unmarried bene- 


ALPHABETICAL SUMMARY 


41 


ficiary during the year is $1,000 or more, or in the 
case of a married beneficiary or head of family 
where it is $2,000 or more. Where the income is 
paid to the beneficiary the Fiduciary makes a Re¬ 
turn on Form 1041 and the beneficiary pays the tax. 
Where the income is not paid over, the Fiduciary 
makes a Return on Form 1040 and pays the tax. 

Compensation received by Fiduciaries although 
covering services rendered over a period of years 
should be returned as income in the individual re¬ 
turn of the Fiduciary for the year in which it is re¬ 
ceived. 

FISCAL YEAR. A corporation or partnership de¬ 
siring to make a Return based 
on its own fiscal year may do so with the consent 
of the Collector. Such a Return should be filed 
within sixty days of the close of the fiscal year. 

GIFTS. Gifts and gratuities need not be returned 
as income, although the income from 
gifts and gratuities should be so returned. See 
“Salaries.” 

GUARDIANS. See “Fiduciaries.” 

HEAD OF A Head of a family is a person who 
FAMILY. actually supports and maintains 
one or more individuals who are 
closely connected with him by blood relationship, 
relationship by marriage or by adoption, and whose 
right to exercise family control and provide for 
these dependent individuals is based upon some 
moral or legal obligation. One parent the head of 


42 


FEDERAL INCOME TAX. 


a family has an exemption of $200 under each Acl 
for each dependent child under eighteen years oi 
age. 

HOLDING 

COMPANY. See "Corporations/’ 

HUSBAND The husband should file a Return if 
AND WIFE, his net taxable income or the joint 
net taxable income of husband and 
wife exceeds $2,000. 

The wife should subscribe to a joint Return made 
by the husband if her income exceeds $1,000. If 
it is less than $1,000 it should be included in the 
husband’s Return and she need not sign. 

The wife must file a separate Return if her net 
taxable income exceeds $5,000. If either husband 
or wife are liable to the Surtax they must file indi¬ 
vidual returns. 

Husband and wife have only one exemption of 
$4,000 under the Act of 1916 and $2,000 under the 
Act of 1917. The exemption of $200 for each child 
under 18 years under each Act should be claimed 
in the husband’s Return. 

Separate Returns made by husband and wife 
should be fastened together. 

Husband and wife not living together are re¬ 
garded as single persons. 

INCOME TO (a) Accident insurance re- 
BE RETURNED, ceived less premiums paid. 

(b) Alimony received. 

(c) Business and professional income. 


ALPHABETICAL SUMMARY 


43 


(d) Damages received for personal injuries. 

(e) Directors’ fees received where compensation 
for attendance. 

(f) Dividends received from corporations must 
be returned but will be omitted in figuring normal 
taxes. 

(g) Dividends received on paid-up life insurance 
policies. 

(h) Interest received from savings banks and na¬ 
tional banks. 

(i) Interest received on debts, notes, mortgages 
and taxable bonds. Interest on tax free covenant 
bonds must be returned but will be omitted in fig¬ 
uring the normal tax if withheld at source. 

(j) Pensions received from the United States 
Government. 

(k) Profits received from the sale of capital as¬ 
sets. 

(l) Rents received. 

(m) Rights sold. 

(n) Royalties received. 

(o) Salaries, commissions or other compensation 
received for services rendered. 

(p) Stock and scrip dividends received. 

(q) Stock received in reorganizations where the 
exchange is better than share for share. 


INCOME NOT TO (a) Dividends received on 
BE RETURNED. unmatured life insurance 
policies. 

(b) Gifts and legacies received. 


44 


FEDERAL INCOME TAX. 


(c) Interest received on State and Municipal 
bonds, also on United States bonds issued prior to 
September 1, 1917. The income from United States 
bonds issued after Sept. 1, 1917, is exempt up to 
$5,000 of principal. 

(d) Proceeds of life insurance policies received 
by an individual beneficiary. 

(e) Returned premiums received from life insur¬ 
ance, endowment or annuity contracts. 

(f) Rights to subscribe for stock so long as un¬ 
sold. 

(g) Salaries of the President, of Federal Judges 
and of State and Municipal officers and employees. 

(h) Stock received in reorganizations where ex¬ 
change is share for share. 

INFORMATION Bondholders are required to file 
AT SOURCE. ownership certificates with cou¬ 
pons. 

Brokers, if required, must furnish the names of 
customers with details as to profits and losses. 

Corporations, if required, must furnish the names 
and addresses of stockholders, the number of shares 
owned, the amount of dividends paid and the years 
in which such dividends were earned. 

Individuals, partnerships and corporations mak¬ 
ing payment to any person, partnership or corpora¬ 
tion of interest, rent, salaries, wages, premiums, an¬ 
nuities, compensation, remuneration, emoluments 
or other fixed or determinable gains, profits or in¬ 
come (except payments by brokers above referred 
to and dividends paid by corporations) of $800 or 


ALPHABETICAL SUMMARY 


45 


more in any tax year are required to report the 
names and addresses of the recipients and the 
amounts paid to them. This includes salaries, 
wages or compensation amounting to $800 or more 
during the year without regard to the basis of pay¬ 
ment or the period during the year in which it was 
earned and for which it was paid. 

INSURANCE. Dividends on life insurance poli¬ 
cies which have not matured need 
not be returned as income, but dividends on paid- 
up policies should be so returned. 

Fire insurance premiums on a house occupied by 
the owner are treated as living expenses and can¬ 
not be deducted. Fire insurance premiums on prop¬ 
erty which is rented may be deducted as business 
expenses. 

Proceeds of life insurance policies paid to others 
than the insured and return premiums or dividends 
on life insurance, endowment or annuity contracts 
are an exemption. 

Money received from accident insurance less 
premiums paid is regarded as income. 

Corporations insuring their officers and em¬ 
ployees cannot deduct the premiums under the Fed¬ 
eral law, although they may do so under the Massa¬ 
chusetts law. 


INTEREST. Interest is returnable as income in 
the year received 


46 


FEDERAL INCOME TAX. 


Bank Interest received on deposits or certifi- 

Deposits. cates of deposit in national banks or 
trust companies and interest on savings banks and 
on co-operative banks deposits should be returned 
as income. 

Bonds. Interest on bonds of business corporations 
should be returned as income. Interest on 
United States, State, County and Municipal bonds 
is exempt except as to the excess over $5,000 of 
Liberty bonds (4%) and other United States bonds 
issued after September 1, 1917. 

Corporations. The amount of interest which a cor¬ 
poration may deduct is limited to 
interest paid on its indebtedness to an amount not 
exceeding the paid-up capital stock outstanding at 
the close of the year plus one-half of the interest- 
bearing indebtedness then outstanding. 

Interest on Interest incurred on indebtedness 
Indebtedness, for the purchase of non-taxable se¬ 
curities cannot be deducted. 

Mortgage. Mortgage interest should be returned 
as income. Mortgage interest paid is 

a deduction. 

INVENTORY. Should include finished and un¬ 
finished products, raw material 
and supplies. Inventory should be at cost, or cost 
or market value, which ever is the lower. 


ALPHABETICAL SUMMARY 


47 


JUDGES. Salaries of Federal Judges in office Oc¬ 
tober 3, 1917, and of Judges of State 
and City Courts are exempt and need not be re¬ 
turned. 

LANDLORD An individual owning and rent- 
AND TENANT, ing real estate is engaged in 
“trade,” so as to be entitled to 
deduct expenses and depreciation relating to such 
items. 

Landlord. A landlord is entitled to a deduction for 
interest, taxes, repairs, janitor and ele¬ 
vator service, fuel, light, water, insurance and other 
maintenance charges, also depreciation, but not 
losses on the sale of such property in excess of simi¬ 
lar gains. 

Tenant. Where the rental basis is rent and taxes 
and insurance premiums the entire 
amount should be returned as rent. 

LATE RETURNS. In case of sickness or absence 
the Collector may authorize a 
late return, granting an extension of not exceeding 
thirty days from the date when the Return is due. 

LEGACIES. Legacies are treated as gifts and 
need not be returned as income. The 
income from legacies, however, is treated as income 
and should be so returned. 


48 


FEDERAL INCOME TAX. 


LIMITED 

PARTNERSHIPS. 

ations. 


Limited partnerships are re¬ 
quired to make a Return simi¬ 
lar to that required of corpor- 


LIVING Living expenses cannot be deducted 
EXPENSES, in an Individual Return. 

LIBERTY BONDS. See “Bonds.” 


LOSSES. Losses which are a proper deduction 
are limited to those incurred in trade 
during the year including bad accounts actually 
ascertained to be worthless and charged off on the 
books during the year, and to losses in stock trans¬ 
actions or business dealings outside of an individ¬ 
ual’s own business which do not exceed the profits 
returned with relation to the same class of transac¬ 
tions. Paper losses are not considered. 

MASONIC Masonic Organizations are 

ORGANIZATIONS, exempt and need not file In¬ 
come Returns. They should, 
however, file a List of Employees paid $800 or over 
and a list of Rent or other payments over $800. 
See “Information at Source.” 


MORTGAGE Mortgage interest received is in- 
INTEREST. come. Mortgage interest paid is 
an allowable deduction. Mortgage 
interest paid on property owned by the wife may 
be deducted in the joint Return of husband and 
wife. 


ALPHABETICAL SUMMARY 


49 


NEW 

CORPORATIONS. See “Corporations/' 

NORMAL TAX. The normal tax is assessed 
upon the entire net income. The 
surtax applies to net incomes in excess of $20,000 
under the Act of 1916 and $5,000 under the Act of 
1917. 

NON-RESIDENTS. A citizen of the United 
States residing abroad or a 
non-resident alien holding property in the United 
States from which he receives a net income of $1,000 
or more must make an Individual Return. 

PARTNERSHIPS. Partnerships are not required 
to make an Income Return in 
ordinary cases, although the Collector may require 
such a return. 

Individual members of a partnership should in¬ 
clude their net income from the partnership in their 
Individual Returns. 

In the case of fiscal year partnerships the profits 
assignable to 1916 but received in 1917 should be 
returned for purposes of the normal tax as 1916 
income and will be taxed at 2 per cent, under the 
Act of 1916. There will be no tax under the Act of 
1917. 

For purposes of the surtax they should be 
allocated in the same manner as dividends. 

Limited partnerships are required to make Re¬ 
turns similar to those required of corporations. 


50 


FEDERAL INCOME TAX. 


Salaries paid to partners cannot be deducted as a 
business expense. The reverse is true under the 
Excess Profits Tax. 

PAYMENT Individual Income Taxes are pay- 
OF TAXES, able June fifteenth. Corporation 
Taxes where calendar year is used 
are payable June fifteenth. Corporation Taxes 
based on fiscal year are payable one hundred and 
sixty-five days after the close of such fiscal year. 

Taxes should be paid to the Collector for the 
district in which the tax payer resides or in the case 
of corporations in which the principal place of busi¬ 
ness is located. 

PENALTIES. The Income Tax Law provides 
heavy penalties for failure to file 
Returns on time and for failure to pay the tax 
assessed. 

The Treasury Department, however, has author¬ 
ized Collectors in cases where there has been no 
wilful default on the part of the tax-payer and 
where proper Returns are subsequently filed and 
the tax paid, to compromise the statutory penal¬ 
ties. 

PENSIONS. Pensions received from the United 
States Government should be re¬ 
turned as income. 

Pensions paid by a corporation to retired em¬ 
ployees are an allowable deduction in its Return, 


ALPHABETICAL SUMMARY 


51 


although gifts or gratuities to employees would not 
be so considered. 

PROFESSIONS. Lawyers, doctors, teachers and 
other professional men whose 
net income is $1,000 or more if unmarried and $2,000 
or more if married or the head of a family are re¬ 
quired to file Individual Returns. 

Deductions. Professional men are allowed the 
same deductions as other individuals. 
They may include among their deductions office 
rent and clerk hire, expense of an automobile used 
in business, losses from bad accounts and deprecia¬ 
tion on libraries and office equipment. 

Fees. Professional fees should be returned as in¬ 
come for the year in which they are received, 
and without regard to the year when earned. 

Other Professional men are required to return 
Income, income from all sources as well as pro¬ 
fessional income, excepting only income 
which is exempt. See “Income ,, and “Exemptions.” 

PROFITS Profits are income. Losses when 

AND LOSSES, occurring in trade are a deduc¬ 
tion. 

Profits and losses are based on actual cost and 
selling price except that where property was pur¬ 
chased prior to March 1, 1913, the value as of that 
date determines cost. 

Paper profits and losses are to be disregarded. 


52 


FEDERAL INCOME TAX. 


Losses not in trade are permitted to be offset 
against profits returned in similar transactions. 

PUBLIC Income Tax Returns are not open 

INSPECTION, to public inspection. 

REAL ESTATE. Profits in dealings in real es¬ 
tate should be returned as in¬ 
come. Losses in connection with such dealings 
may be deducted if they do not exceed the profits. 

Maintenance. Repairs, taxes, mortgage interest, 
insurance, fuel, light, water, janitor 
and elevator service and depreciation are allowable 
deductions. 

Rent. Rent should be returned as income. See 
“Landlord and Tenant/’ 

RECEIVERS. Receivers, trustees in bankruptcy 
and assignees of corporations are 
required to make Returns under the same rules as 
corporations. 

RENT. Rent received should be returned as in¬ 
come for the year when received. 

Where a rental is on the basis of a fixed sum and 
taxes and insurance premiums the total amount 
should be returned as rent. 

The rental value of a house occupied by the 
owner is not a deduction. 

Rent paid if over $800 requires an “Information 
at Source” Return. 


ALPHABETICAL SUMMARY 


53 


REPAIRS. Repairs on a house occupied by the 
owner cannot be deducted as an ex¬ 
pense. Where the house is rented to a third party, 
repairs are a proper deduction. 

REORGANIZATIONS. Where one corporation 

takes over another and 
the stock is exchanged par for par and share for 
share the new stock does not constitute income 
even though the old and new stock represent capi¬ 
tal and surplus. 

Where, however, the new corporation is in ef¬ 
fect a capitalizing of surplus, such part of the new 
shares as represent surplus earned since March 1, 
1913 will be treated as income and must be so re¬ 
turned. 

Cutting melons so called means taxable income. 

RETURNS. Income Tax Returns for each calen¬ 
dar year are required from the fol¬ 
lowing: 

Individuals. Every unmarried individual or citi¬ 
zen or resident of the United States 
having a net taxable income of $1,000 and every 
such married individual or head of a family having 
a net taxable income of $2,000 or over, must file a 
Return. There are separate blanks for net incomes 
under $3,000 and net incomes over $3,000. See 
“Husband and Wife ” 

Partnership. Partnerships as such are not required 
to make a Return except where re- 


54 


FEDERAL INCOME TAX. 


quested to do so by the Collector. See “Partner¬ 
ships.” 

Corporations. Every taxable business corporation 
in existence during any part of the 
calendar year and whether engaged in business or 
not must make a Corporation Return. 

Fiduciary. Every Executor, Administrator, Guard¬ 
ian, Conservator, or Trustee where the 
net income accrued or paid to any unmarried bene¬ 
ficiary is $1,000 or over, or $2,000 or over in the 
case of a married beneficiary or head of a family, 
must make a Fiduciary Return. See “Fiduciaries.” 

When Filed. All Returns are required to be filed 
March first, except in the case of 
corporations which have obtained the consent of 
the Collector to make Returns as of their own fiscal 
year in which case the Returns are required to be 
filed within sixty days of the close of such fiscal 
year. 

Inspection. Returns are not open to public inspec¬ 
tion. 

Where Filed. Returns are to be filed with the> 
Collector for the district in which 
the individual or corporation has its residence or 
principal place of business. 

RIGHTS. Rights to subscribe for stock of a cor¬ 
poration are not considered as income 
when received, but if they are sold the proceeds 
are to be returned as income. 


ALPHABETICAL SUMMARY 


55 


ROYALTIES. Royalties received should be re¬ 
turned as income. Royalties paid 

are a deduction. 

SALARIES. Salaries and commissions in the na¬ 
ture of salary are income when re¬ 
ceived. They are subject to the normal and surtax. 
Salaries paid are a deduction when based upon rea¬ 
sonable compensation for service rendered. They 
should not be based on the increase or decrease of 
profits or on stock holdings. 

Bonus. Special payments as additional compensa¬ 
tion for services rendered are a business 
expense if made in pursuance of a contract, ex¬ 
pressed or implied and if not more than reasonable 
compensation. If a gift or based on stock holdings 
thev are not an allowable deduction. 

Judges. Salaries of Judges of Federal Courts in 
office October 3, 1917, and of Judges of 
State Courts are exempt. 

Living The rental value of living quarters fur- 
Quarters. nished to an employee as part of his 
compensation should be returned as in¬ 
come. 

SAVINGS BANKS. Interest on deposits in Sav¬ 
ings Banks, Co-operative 
Banks, and Savings Departments of Trust Compan¬ 
ies should be returned as income. 


56 FEDERAL INCOME TAX. 

STOCK DIVIDENDS. See “Dividends.” 

TAXES. Taxes actually paid during the year ex¬ 
cept Income and Excess Profits Taxes 
are a deduction. 

Excess Profits taxes for the current year are cred¬ 
ited in determining the Income Tax to be paid. 

Custom duties paid by an individual are con¬ 
sidered taxes, if paid in connection with a business 
are considered as part of the cost price. 

Inheritance taxes and taxes paid for local benefits 
are not deductible. 

Taxes paid on real estate owned by the wife may 
be deducted in a joint Return of husband and wife. 

TAX FREE In the case of bonds con- 

COVENANT BONDS, taining an agreement by 
the corporation to pay all 
taxes, the holder of coupons should file an owner¬ 
ship certificate claiming exemption, otherwise the 
corporation will withhold two per cent at source. 
Where exemption was not claimed the full amount 
should be returned as income. 

TRUSTEES. See “Fiduciaries.” 

VOTING TRUST. A Voting Trust receiving divi¬ 
dends on stock of corpora¬ 
tions and turning them directly over to the stock¬ 
holders and conducting no other business need not 
make a Corporation Return. 


WEAR AND TEAR. See “Depreciation.” 


ALPHABETICAL SUMMARY 


57 


WIFE. See “Husband and Wife." 

WITHHOLDING From and after January 1, 
AT SOURCE. 1918, a normal tax of two per 
cent, is withheld at source on 
payments of interest upon bonds and mortgages of 
corporations which contain a “tax-free covenant” 
clause, except where an Exemption Claim is filed. 

Two per cent, at source is withheld on payments 
of income to individuals and corporations outside of 
the United States, six per cent, at source is with¬ 
held by a corporation on interest payments made 
to non-resident alien corporations. 

Except as above, Withholding at Source is abol¬ 
ished. 


58 


FEDERAL INCOME TAX. 


QUESTIONS AND ANSWERS 
(Compiled by Treasury Department.) 

Am I required to render a personal income-tax 
return for the year 1917? 

Yes; if unmarried and your net income for that 
year equals or exceeds $1,000. If you are married 
no return is required unless your net income, in¬ 
cluding that of your husband or wife and dependent 
children, equals or exceeds $2,000. 

Will failure to file my return within the time pre¬ 
scribed by law render me liable to any penalty? 

Yes. Under the provisions of section 18 of the 
act of September 8, 1916, as amended, you will be 
liable to a specific penalty of not less than $20 nor 
more than $1,000 if you fail to have your 1917 re¬ 
turn in the office of the collector of internal revenue 
for your district before the close of business on 
March 1, 1918; and, under the provisions of section 
3176, Revised Statutes, you will also be liable to 50 
per cent, additional tax. 

May an extension of time beyond March, 1, 1918, 
be obtained for the filing of my 1917 return? 

Yes. If, on account of illness or absence from 
home, you are unable to render your return within 
the time prescribed by law, you may obtain an ex¬ 
tension of 30 days if a request therefor is filed with 
the collector of your district before the due date of 
the return. 

Would a personal return rendered by an agent, 
for and in my behalf, be accepted? 


QUESTIONS AND ANSWERS. 


59 


If by reason of illness, absence, or nonresidence 
a taxpayer is unable personally to render his return, 
he may appoint an agent to act for him, and the re¬ 
turn executed by the agent will be accepted if he 
makes affidavit that he has sufficient knowledge to 
make a complete and accurate return for his prin¬ 
cipal and assumes responsibility for making the re¬ 
turn and incurring the penalties provided for a de¬ 
linquent, erroneous, false, or fraudulent return. 

What would happen should a taxpayer render a 
false or fraudulent return with intent to evade a 
proper payment of income tax? 

Under the provisions of section 3176, Revised 
Statutes, he would become liable to an additional 
tax of 100 per cent, and under the provisions of sec¬ 
tion 18 of the act of September 8, 1916, as amended, 
to a fine of not to exceed $2,000, or to one year’s im¬ 
prisonment, or both, in the discretion of the court, 
and to the costs of prosecution. 

May a husband and wife, living together, and 
each receiving an independent income, render sep¬ 
arate returns? 

Yes. If the husband and wife each receive an in¬ 
dependent income equal to or in excess of $1,000, 
separate returns may be rendered. If, however, the 
income of either is less than $1,000, but their com¬ 
bined income equals or exceeds $2,000, a joint re¬ 
turn should be rendered. 

Where husband and wife file separate returns, 
one of them being filed within the time prescribed 
by law, the other delinquent, such returns are not 


60 


FEDERAL INCOME TAX. 


held to be supplemental to each other, and de¬ 
linquency must be answered for by the one in con¬ 
nection with whose return it occurred. 

If a husband and wife render a joint return, is the 
additional tax assessed against that return based 
upon the aggregate amount of income shown? 

No. The normal income tax will be assessed 
against the aggregate amount reported by the hus¬ 
band and wife whether joint or separate returns are 
rendered, but the additional income taxes are only 
assessed against the separate income of each. 

Is a married man entitled to a personal exemption 
of $2,000, and $400 additional exemption on account 
of two dependent children, whose total net income 
does not exceed $2,400, but does equal or exceed $2,- 
000, required to render a return? 

Yes. While he will not be required to pay an in¬ 
come tax, he is required to render a return if his net 
income equals or exceeds $2,000. 

If an individual engaged in business takes an in¬ 
ventory and closes his books on any day during a 
calendar year, can he render his personal income-tax 
return on the basis of that fiscal year? 

No. A personal income-tax return can not be 
rendered for any other period than a full calendar 
year. 

What amount of personal exemption is allowed 
by each of the two acts? 

Section 7 of the Act of September 8, 1916, allows a 
personal exemption of $3,000 to unmarried persons, 
plus $1,000 additional if the person making the re- 


QUESTIONS AND ANSWERS. 


61 


turn be the head of a family or a married man with 
a wife living with him. This additional exemption 
of $1,000 is allowed if the person making the return 
is a married woman with a husband living with her, 
but in no event shall this additional $1,000 be de¬ 
ducted by both husband and wife. 

The exemptions allowed by section 3 of the act of 
October 3, 1917, are the same as under the act of 
September 8, 1916, except that the exemptions of 
$3,000 and $4,000 allowed by the 1916 act are, re¬ 
spectively, $1,000 and $2,000. 

In addition, a further exemption of $200 is al¬ 
lowed for each dependent child under 18 years of 
age, or over that age if incapable of self-support be¬ 
cause mentally or physically defective, and this is 
allowed in computing normal tax liability under 
both acts. 

May a widower or widow whose wife or husband 
died during the latter part of the tax year, say, De¬ 
cember 26, claim the full amount of personal ex¬ 
emption to a married person? 

No. The marital status of the person rendering 
the return as of December 31 of the tax year de¬ 
termines the amount of exemption which may be 
claimed. 

What is meant by the term “Head of a family"? 

Treasury Decision 2427 states that a “head of a 
family" is held to be a person who actually supports 
and maintains one or more individuals who are 
closely connected with him by blood relationship, 
relationship by marriage or by adoption, and whose 
right to exercise family control and provide for 


62 


FEDERAL INCOME TAX. 


these dependent individuals is based upon some 
moral or legal obligation. 

What income, if any, is exempt? 

(a) The proceeds of life insurance policies paid 
to individual beneficiaries upon the death of the in¬ 
sured. 

(b) The amount received by the insured, as a 
return of premium or premiums paid by him under 
life insurance, endowment, or annuity contracts, 
either during the term or at the maturity or sur¬ 
render, of the insurance contract. 

(c) The value of property acquired by gift, be¬ 
quest, devise, or descent. It must be understood, 
however, that the income derived from such prop¬ 
erty is taxable. 

(d) Interest upon the obligations of a State, or 
any political sub-division of a State, or upon the 
obligations of the United States, except in the case 
of obligations of the United State? issued after Sep¬ 
tember 1, 1917, only to the extent provided in the 
act authorizing their issue. 

(e) Interest upon the obligations of any pos¬ 
session of the United States, or securities issued 
under the provisions of the Federal farm-loan act of 
July 17, 1917. 

(f) The compensation of the present President 
of the United States during the term for which he 
has been elected, and the judges of the Supreme and 
inferior courts of the United States in office on Oc¬ 
tober 3, 1917. 

(g) The compensation of all officers and em¬ 
ployees of a State or any political subdivision of a 


QUESTIONS AND ANSWERS. 


63 


State, except when such compensation is paid by 
the United States Government. This includes the 
official salaries received by public-school teachers, 
State and county officers, and employees of munici¬ 
palities; but income derived by such persons from 
sources other than State, county or municipal funds, 
and the other sources enumerated in this answer, is 
taxable. (See sec. 4, act of Sept. 8, 1916, as 
amended.) 

In rendering a return what items of income must 
I report under gross income? 

Under gross income should be reported every 
item of income derived from any source whatever 
(except those specified in the answer to question 
18) actually received during the calendar year for 
which the return is rendered, whether received in 
cash or the equivalent of cash, including: 

(a) All amounts of salary, wages, commissions 
or compensation of whatever kind, received for per¬ 
sonal service, including professional fees. 

(b) All amounts of gain, profit or income de¬ 
rived from a business, trade, commerce, or from any 
sale of property, real, personal or mixed. The 
method of ascertaining the amount of gain or profit 
derived from a sale is outlined in the answer to 
question 26. 

(c) Rents, interest on notes, mortgages, deeds 
of trust, or other securities issued by individuals, 
partnerships, etc., interest on bonds, mortgages, 
deeds of trust, or other similar obligations of 
corporations, joint-stock companies, associations or 
insurance companies, and interest on bank deposits- 


64 


FEDERAL INCOME TAX. 


(d) All income received from fiduciaries—that 
is amounts received from incomes of estates, trusts, 
etc., through trustees, administrators or executors. 

(e) If you have an interest in a partnership you 
should report your distributive share of the earn¬ 
ings or profits of the partnership ascertained during 
the calendar year for which the return is rendered, 
whether distributed to you or not; that is, if the 
fiscal year of the partnership ends on December 31 
of that year your distributive share of its earnings 
or profits ascertained upon the close of the books 
on December 31 should be returned. If the part¬ 
nership ends its fiscal year on some day during the 
calendar year your distributive share of its earnings 
or profits ascertained at that time should be re¬ 
ported. 

(f) All items of foreign income—that is, inter¬ 
est upon bonds and mortgages or deeds of trust 
or other similar obligations issued by individuals 
who are citizens or residents of foreign countries, 
foreign corporations, joint-stock companies, etc. 

(g) Royalties from mines, oil and gas wells, 
patents, copyrights, franchises, or other legalized 
privileges. 

(h) Dividends on stock or from the net earn¬ 
ings of domestic corporations, joint-stock com¬ 
panies, associations or insurance companies, wheth¬ 
er paid in cash, stock or script. As the net earn¬ 
ings of corporations, joint-stock companies, etc., are 
subject to the tax imposed upon the net income of 
corporations, dividends from such net earnings are 
not subject to the normal income tax in the hands 
of the shareholders receiving the same, but they are 


QUESTIONS AND ANSWERS. 


65 


to be returned for the additional tax purposes and 
are subject to that tax. The rates of tax to be 
assessed against a dividend received during the 
year 1917, or any subsequent year, are covered by 
the answer to question 53. 

If my salary for December, 1917, is not paid to me 
until some day in January, 1918, or later, is its 
amount to be included in my 1917 return? 

It is to be returned for the year during which it 
was actually received by you. 

An employee receives a per diem allowance for 
expenses in addition to his regular salary. Is this 
amount to be included as income in his return? 

Yes. The entire amount of allowance received 
should be reported as income. The difference be¬ 
tween the expenses incurred and paid while away 
from home and the ordinary expenses while at home 
may be claimed as a deduction. 

If I enter into a contract in 1917 which will not 
be completed until 1918, and which requires me to 
make expenditures for material and labor, provide 
for possible losses, etc., must I include the advanced 
payments I receive in 1917 in my return for that 
year? 

No. As you are unable to determine what 
amount of gain or profit you will derive from the 
contract until it is completed, the payments re¬ 
ceived thereon during 1917 need not be included in 
your return for that year. When the contract is 
completed the net gain or profit derived therefrom 
should be reported under “Gross income” in your 
return rendered for the year 1918. 


66 


FEDERAL INCOME TAX. 


How am I to determine what amount of gain or 
profit derived from a sale of property is returnable 
for income-tax purposes? 

If you acquired the property sold prior to March 
1, 1913, you should take its fair market price or 
value as of that date, add thereto all amounts sub¬ 
sequently expended in making permanent improve¬ 
ments, then deduct the aggregate of all claims for 
depreciation in value of property claimed as deduc¬ 
tions on previous returns, and the difference be¬ 
tween the result thus obtained and the selling price 
is the amount to be reported under “Gross income.” 

If you purchased the property on or after March 
1, 1913, the difference between its cost, plus all 
amounts subsequently expended for permanent im¬ 
provements less depreciation previously claimed, 
and its selling price, is to be returned. 

If the property came to you on or after March 1, 
1913, as an inheritance, the difference between the 
appraised value placed upon it at that time plus all 
amounts subsequently expended for permanent im¬ 
provements, less depreciation previously claimed, 
and its selling price, is to be returned. 

How is the value as of March 1, 1913, of property 
sold determined? 

No method of determining this value can be 
stated which will adequately meet all circumstances. 
What that value was is a question of fact to be 
established by any evidence which will reasonably 
or adequately make it appear. 

A tenant, under the terms of a lease, is required to 
pay a certain cash rental and in addition make cer- 


QUESTIONS AND ANSWERS. 


67 


tain improvements. Is the cost of these improve¬ 
ments held to be taxable income to the property 
owner? 

Report cash rental for year in which received. 
The difference between cost of improvements and a 
reasonable allowance for the exhaustion, wear and 
tear of the property arising out of its use or employ¬ 
ment in the business or trade of lessee during the 
period of its life under the lease should be returned 
as income to the lessor for the year during which 
the lease terminates. (See T. D. 2442.) 

Special payments, designated as “Bonuses/” are 
often made to officers and employees of corpora¬ 
tions, firms and individuals. Are such items of in¬ 
come subject to tax in the hands of their recipients? 

Any bonus or other item of compensation paid to 
an employee in addition to his regular salary or 
wage under a contract, expressed or implied, as ad¬ 
ditional compensation for services rendered as a re¬ 
ward for past endeavors, or as a stimulus to further 
zeal and enthusiasm in the discharge of his duties, 
is held to constitute taxable income which should be 
reported under “Gross income” in the employee’s re¬ 
turn rendered for the year during which received. 
Christmas remembrances, anniversary gifts, etc., 
from an employer to an employee do not constitute 
such items as are subject to the income tax. 

What method should a merchant adopt to ascer¬ 
tain the amount of gain or profit which is to be re¬ 
ported under gross income? 

Any individual who conducts a grocery, dry 
goods, clothing, or farm-implement business or any 


68 


FEDERAL INCOME TAX. 


other business which requires that a stock be car¬ 
ried should take an inventory at the close of each 
calendar year. To the total of his inventory taken 
at the beginning of the year for which the return is 
to be rendered should be added the cost of all goods 
purchased during that year, and the difference be¬ 
tween the amount thus obtained and the total of his 
inventory taken at the close of the tax year, plus his 
total gross receipts, is the amount to be reported 
under “Gross income.” Gross receipts should not 
be reported under “Gross income” and the cost of 
the goods purchased claimed as a deduction. 

A piano dealer sells an instrument under a con¬ 
tract which states that payment therefor is to be 
made in monthly installments, and that the title to 
the instrument is to remain with the dealer until the 
last payment is made. How is the latter to report 
the amount of profit derived from this transaction? 

It is held that every dollar received under such a 
contract represents, in part, the return of a portion 
of the cost of the article to the dealer and a portion 
of the profit to be derived from the transaction; and 
that the amount of profit represented by all pay¬ 
ments during the tax year should be included in the 
dealer's personal return rendered for that year. For 
example, a piano which cost the dealer $300 is trans¬ 
ferred to another under a contract calling for 20 
monthly payments of $20 each, a total of $400. 
Each monthly payment represents a return of capi¬ 
tal amounting to $15 and a profit amounting to $5, 
and multiplying this latter amount by the number 
of payments received during the year yields the 


QUESTIONS AND ANSWERS. 


69 


amount to be returned as income for that year. 
When there is a lapse or default in payment and the 
dealer becomes repossessed of the article, the entire 
amount theretofore paid and credited to principal 
from date of contract to date of default is income to 
be included in a return of income, for the reason 
that it is held that such an amount constitutes ren¬ 
tal for the use of the article. In case of such de¬ 
fault a reasonable allowance may be claimed as a 
deduction to cover such depreciation as may have 
actually occurred in the value of the repossessed 
article by reason of its use. 

I have two children who live at home and are 
regularly employed. One is 17 years old; the other, 
21 years old. Am I required to include the amount 
of income which accrues to each during a calendar 
year in my own personal return? 

As the first child has not reached its majority and 
is still legally under your control, the amount of its 
income is to be included in your personal return and 
is subject to tax in your hands. The income of the 
child which has attained its majority is not to be in¬ 
cluded in your return and is only subject to tax in 
the hands of that child. 

Must I include in my personal return the amount 
of interest I receive on Liberty Loan bonds, or is 
that interest exempt from tax? 

All interest derived from the Liberty Loan 3J4 
per cent, bonds issued under the act of April 24, 
1917, is exempt from both the normal and additional 
income tax. 


70 


FEDERAL INCOME TAX. 


Interest derived from the Liberty Loan 4 per cent, 
bonds issued under the act of September 24, 1917, is 
exempt from the normal income tax; but so much 
of the interest as is derived from such bonds, the 
principal of which exceeds $5,000, is subject to the 
additional income tax; that is, if you hold $8,000 of 
Liberty Loan 4 per cent, bonds the interest from 
$5,000, or $200, is exempt from tax, and the balance 
of the interest, or $120, is subject to the additional 
tax. 

I held an endowment life insurance policy upon 
which I paid premiums for 20 years. In 1917 that 
contract matured and I received its face value, or 
$1,000. Must I return the entire amount received? 

No. Return only the difference between the ag¬ 
gregate amount of premium paid and the amount re¬ 
ceived upon maturity of the contract. 

Are commissions on renewal premiums on in¬ 
surance policies subject to income tax? 

Yes; such commissions received by insurance 
agents on account of business written are taxable 
income for the year in which received. 

“A,” who is the employee of a corporation, was 
injured and under the laws of the State in which the 
accident occurred he received $5,000 on account of 
the injury he suffered. Must the amount thus re¬ 
ceived be reported as income? 

Yes. Any amount received under an employers’ 
liability act or workman’s compensation act, or any 
other similar act, or as the result of a settlement or 
compromise for “pain and suffering,” is held to be 


QUESTIONS AND ANSWERS. 


71 


such income as is subject to the Federal income tax. 
This ruling is also applicable to any amount re¬ 
ceived under the terms of an accident insurance pol¬ 
icy. 

Do the pensions and retired pay of ex-officers and 
men of the United States military and naval forces 
constitute items of taxable income? 

Yes. 

I own stock in a bank which, under a State law, 
is required to pay the taxes assessed against such 
stock. How is this matter to be handled for income- 
tax purposes? 

The proportionate part of the entire amount of 
taxes so paid by the bank, which is properly charge¬ 
able against the number of shares held by you, 
should be reported, for additional tax purposes, in 
your personal return, as a dividend, and then 
claimed as a deduction under the heading of 
“Taxes.” 

In 1915 I purchased 10 shares of the preferred 
stock of a corporation and received 10 shares of com¬ 
mon stock as a bonus. Has the value of this bonus 
a taxable status? 

No; but when the stock received as a bonus is 
sold, the entire proceeds of the sale are income sub¬ 
ject to normal and additional tax and should be in¬ 
cluded in your return rendered for the year during 
which the sale is made. 

Are amounts placed to the credit of a shareholder 
in a building and loan association subject to income 
tax? 


72 


FEDERAL INCOME TAX. 


Any amount credited to a shareholder when the 
title to such credit passes to the latter at the time of 
the credit has a taxable status for the normal and 
additional income tax and should be included in the 
return rendered for the year during which the 
credit is made. 

Where the amount of accumulations credited does 
not become available to the shareholder until the 
maturity of a share it need not be reported as in¬ 
come, but upon maturity of the share the amount re¬ 
ceived in excess of the total amount actually paid in 
by the shareholder is to be returned. 

I hold stock in a corporation which in 1917 in¬ 
creased its capital and gave me the right to sub¬ 
scribe for additional stock at par. If I sell this 
“right,” are the proceeds to be returned for tax pur¬ 
poses? 

Yes; the entire proceeds from the sale of a “right” 
to purchase additional stock should be included in 
the return rendered for the year during which the 
sale is made and will be subject to both the normal 
and additional tax. 

Are payments of alimony to be returned for tax 
purposes by their recipient? 

Alimony is not held to be income to the recipient, 
nor is it held to be such an item as is allowable as 
a deduction to the person paying the same. 

The net earnings of a corporation in which I held 
stock in the year 1916 amounted to $50,000, which 
amount was carried to surplus account. Its net 
earnings from January 1 to December 31, 1917, 


QUESTIONS AND ANSWERS. 


73 


amounted to $70,000, and on this latter date these 
last earnings were carried to surplus and a cash 
dividend of $50,000 declared and soon thereafter 
paid. What income taxes are to be assessed against 
this dividend? 

Section 31 (b) of the act of September 8, 1916, as 
amended by the war revenue act, provides, in part, 
as follows: 

Any distribution made to the shareholders or 
members of a corporation, joint stock company or 
association, or insurance company, in the year 1917, 
or subsequent tax years, shall be deemed to have 
been made from the most recently accumulated un¬ 
divided profits or surplus, and shall constitute a part 
of the annual income of the distributee for the year 
in which received, and shall be taxed to the distrib¬ 
utee at the rates prescribed by law for the years in 
which such profits or surplus were accumulated by 
the corporations, joint-stock company or associa¬ 
tion or insurance company. 

Therefore, the dividend to which you refer is 
to be charged against the most recently accumu¬ 
lated earnings or surplus; that is, against the 
$70,000 earned during 1917 and carried to surplus 
on the day the dividend was declared, and it will 
be subject to the additional tax, at the rates pre¬ 
scribed by the act of September 8, 1916, and also 
at the rates prescribed by the war revenue act of 
October 3, 1917. 

Suppose that instead of declaring a dividend of 
$50,000, this corporation had declared a dividend 
of $100,000? 


74 


FEDERAL INCOME TAX. 


If such had been the case, the entire amount of 
net earnings carried to surplus on December 31, 
1917, would have been subject to additional tax 
at the same rates as the dividend mentioned in 
your inquiry, next above, and the balance of $30,- 
000, would have been held to have been paid from 
the 1916 earnings and would have been subject to 
additional tax only at the rates prescribed in the 
act of September 8, 1916. 

Assuming that instead of paying this dividend in 
cash a corporation had capitalized the same amount 
of surplus as was distributed in cash, or $100,000, 
and issued the new stock to its shareholders as a 
dividend. Would this dividend be taxable? 

Yes; just the same as though it had been paid in 
cash. 

A corporation began business January 1, 1912. 
Its net earnings were as follows: 


Jan. 1, 1912, to Mar. 1, 1913. $10,765 

Mar. 1, 1913, to Jan. 1, 1914. 5,220 

For the year 1914. 7,347 

For the year 1915. 11,000 

For the year 1916. 15,300 

Jan. 1 to Dec. 31, 1917. 27,400 


Amount of surplus on hand Dec. 31, 1917 $77,032 

The corporation never paid a dividend until De¬ 
cember 31, 1917, on which date it declared and paid 
a dividend of $77,032. How will this dividend be 
taxed ? 









QUESTIONS AND ANSWERS. 75 

That portion of the dividend which represents the 
distribution of 1917 earnings, or $27,400, will be sub¬ 
ject to the additional tax at the rates prescribed in 
the act of September 8, 1916; and also in the war- 
revenue act of October, 1917; and that portion which 
represents 1916 earnings, or $15,300, at the rates 
prescribed in the act of September 8, 1916, only; 
that portion which represents earnings which ac¬ 
crued from March 1, 1913, to January 1, 1916, at the 
rates of additional tax prescribed in the act of Oc¬ 
tober 3, 1913. The remainder, or $10,765, is exempt 
from tax under that portion of section 31 (b) which 
states that— 

But nothing herein shall be construed as taxing 
any earnings or profits accrued prior to March 1, 
1913, but such earnings or profits may be distrib¬ 
uted in stock dividends or otherwise, exempt from 
the tax, after the distribution of earnings and profits 
accrued since March 1, 1913, has been made. 

Assuming that a corporation had assets which 
had greatly appreciated in value and had carried the 
amount of that appreciation to its surplus account 
and capitalized same, or that it capitalized its good 
will, and then issued the new stock to its share¬ 
holders as a dividend, would this dividend be sub¬ 
ject to tax? 

Only such dividends as represented a distribution 
of earnings or profits accrued since March 1, 1913, 
are subject to the additional tax when received by 
the shareholders. As appreciation estimated to 
have occurred in the value of the assets held and 


76 


FEDERAL INCOME TAX. 


good will do not represent actual earnings, profits, 
or income, a dividend based upon a capitalization 
of any such items is not subject to tax when re¬ 
ceived by the shareholders. It should be under¬ 
stood, however, that when any of the stock received 
in payment of such a dividend is sold, the entire 
proceeds derived from the same are to be returned 
under “Gross income” in the shareholders’ return 
rendered for the year during which the sale is made, 
and will be subject to both the normal and addi¬ 
tional income taxes. 

A corporation on July 1, 1917, declared a dividend 
and in that declaration specifically stated that it 
would be paid out of earnings or profits which had 
accumulated and were on hand prior to March 1, 
1913. Is this dividend to be returned for income- 
tax purposes? 

No. Section 31 (b), act of September 8, 1916, as 
amended, provides that none of its provisions shall 
apply to anv distribution made prior to August 6, 
1917, out of earnings or profits accrued prior to 
March 1, 1913. 

Are dividends on paid-up life insurance policies 
subject to income tax? 

Dividends on paid-up life insurance policies are 
subject to the additional tax for the year in which 
received. 

What constitutes an item allowable as a deduc¬ 
tion under the head “Business expenses”? 


QUESTIONS AND ANSWERS. 


77 


All amounts of expenses actually paid during the 
tax year in the conduct of a business, trade, or pro¬ 
fession. 

This includes all amounts actually paid by a farm¬ 
er for labor in preparing his land for a crop and the 
cultivation, harvesting, and marketing of the crop; 
the cost of the seed and fertilizer used; the amounts 
expended for labor used in caring for live stock and 
the cost of the feed; the cost of stock purchased 
for the purpose of resale. (It should be understood, 
however, that if such cost is claimed as a deduction, 
the entire proceeds received upon a sale of the stock 
is to be returned as income.) The amounts actually 
paid in making repairs to farm buildings, but not 
the dwelling house; repairs to fences, farm machin¬ 
ery, etc.; the cost of materials for immediate use 
and farm tools which are used up in the course of a 
year or two, such as binding twine, stock powders, 
pitchforks, spades, etc.; and the amount of rent paid 
for a farm may also be claimed. The amounts paid 
for live stock which is to be used for breeding pur¬ 
poses are held to represent investment of capital 
and are not allowable as deductions. 

A merchant may claim as deductions the 
amounts paid for advertising, hire of clerks, and 
other employees; the cost of the light, fuel, water, 
telephones, etc., used in or at his place of business; 
drayage and freight bills; the cost of operating de¬ 
livery wagons, trucks, and the repairs to same. 

The cost of goods purchased for resale is not to 
be claimed as a deduction, as a credit for that cost 
may be obtained by following the method cf compu- 


78 


FEDERAL INCOME TAX. 


tation outlined in the answer to the thirty-fifth 
question. 

A physician may claim as deductions the cost of 
medicines and medical supplies used by him in the 
practice of his profession, expenses paid in the oper¬ 
ation and repair of an automobile used in making 
professional calls, dues to medical societies and sub¬ 
scriptions to medical journals, the expenses of at¬ 
tending medical conventions, the rent paid for office 
rooms and the hire of office assistants, the cost of 
the fuel, light, water, telephone, etc., used in such 
office rooms. Amounts expended for books, medi¬ 
cal supplies, and surgical instruments of a perma¬ 
nent character are now allowable as deductions. 

This in a general ways outlines the ordinary and 
usual expenses incurred by a farmer, a merchant, or 
a professional man, which may be claimed as deduc¬ 
tions, and the principles underlying these allow¬ 
ances are equally applicable in the case of anyone 
engaged in a business, trade or profession. In 
short, all expenses connected directly and solely 
with the conduct of an income-producing business, 
trade, profession, or vocation are allowable. 

Items of personal expense or items connected 
in any way with the support, maintenance, and well¬ 
being of a family are not allowed; neither are the 
amounts paid for tools, implements, vehicles, ma¬ 
chinery, surgical instruments which are more or 
less permanent in character, nor the cost of medical, 
law or other professional books, nor amounts ex¬ 
pended in making permanent improvements or bet¬ 
terments of any kind whatsoever, allowable as de- 


QUESTIONS AND ANSWERS. 


79 


ductions. These latter items are held to be invest¬ 
ments of capital upon which depreciation may be 
claimed. 

If I employ a minor son or daughter to assist me 
in my business or trade and I pay a salary or wage 
for such assistance, may I claim the amount as a 
deduction? 

No. If, however, the son or daughter has at¬ 
tained his or her majority, the amount of compensa¬ 
tion paid for his or her services may be so claimed. 

Can a tax-payer claim a deduction for his own 
remuneration ? 

Wages or salary drawn by a tax-payer from his 
own business are more in the nature of a charge out 
of profits than a charge against profits. If such 
could be deducted they would merely be added to 
his income, the effect of which would be to take 
money out of one pocket and put it in another. 
Therefore no deduction can be claimed for income 
tax purposes. 

(Note.—Any such wage or salary may be entered 
on Form 1040, revised January, 1918, for excess- 
profits tax purposes.) 

Can the amounts expended by a business man in 
entertaining out-of-town customers, or prospective 
customers, be claimed as deductions? 

Yes. If the sole purpose of the business man in 
making such expenditures is to cultivate the good 
will of his customers and secure an increase in trade 
they may be so claimed. 


80 


FEDERAL INCOME TAX. 


Can a salesman working on a commission basis 
claim as deductions the amounts expended from his 
own funds for railroad fare, excess baggage, taxi¬ 
cab or street car fare, show rooms, assistants, ad¬ 
vertising, etc.? 

Yes. If he is not reimbursed for such expendi¬ 
tures by his firm, he should report under “Gross 
income” the total amount of commissions received, 
and he may then claim such expenses as were 
actually incurred and paid in the earning of those 
commissions. 

Can the amount of life insurance premiums and 
premiums paid for insurance on my residence be 
claimed as deductions? 

No, as these are held to be items of personal ex¬ 
pense. If, however, you pay premiums on insur¬ 
ance policies covering farm buildings, other than 
your dwelling house, or on any property used for 
business purposes, these premiums are allowable as 
deductions. 

An individual or a partnership, to protect his or 
its business interests, insures the life of one or more 
employees or members. Can the premiums paid for 
such insurance be considered a business expense 
and claimed as a deduction? 

No. However, should the policy become due and 
payable, the individual or partnership should de¬ 
duct the aggregate amount of premiums paid from 
the proceeds of the policy and return the balance 
as income. 


QUESTIONS AND ANSWERS. 


81 


A tenant, under the terms of a lease, is obligated 
to pay a certain cash rental and all taxes assessed 
against the property and keep it insured. May he 
claim as a business expense the aggregate amount 
of rental, taxes, and insurance premiums paid? 

Yes; if the property is used by the tenant for 
business or trade purposes and *iot as a home, the 
aggregate amount may be claimed as a deduction 
for the year during which actually paid. 

I own stock in a corporation which, in 1917, as¬ 
sessed each of its stockholders $50 on each share 
held. Can the amount paid by me be claimed as a 
deduction? 

No. Assessments made by a corporation on its 
capital stock are regarded as further investments 
of capital and do not constitute an allowable deduc¬ 
tion in the return of the individual. 

If a physician, or other professional or business 
man, rents a home and uses a portion of same for 
professional or business purposes, may any portion 
of the rent paid for that home be claimed as a busi¬ 
ness expense? 

Yes. The proportion of the rent paid which is 
properly chargeable to the number of rooms so 
used may be claimed as a deduction. 

In 1917 I purchased a property, the title to which 
proved defective, and in order to straighten the mat¬ 
ter out I employed an attorney and resorted to court 
proceedings. Can I claim a deduction to cover the 
fee paid the attorney and the court cost? 


82 


FEDERAL INCOME TAX. 


No. Such items are held to be a part of the cost 
of the property and therefore not allowable as de¬ 
ductions. 

If I employ an architect to prepare plans for a 
building to be used for business purposes, may the 
fee paid to the architect be claimed as a business 
expense ? 

No. Amounts expended for an architect’s ser¬ 
vices are held to be a part of the cost of the build¬ 
ing and not such items as may be claimed as de¬ 
ductions. 

You have heretofore stated that only such items 
of income as have actually been paid to me during 
the tax year are to be reported, and only such items 
of expense as I have actually paid during that year 
claimed as deductions. Can not a business or pro¬ 
fessional man who keeps a set of books and enters 
thereon as income the cost of goods sold on credit, 
or fees earned but not paid, and charges to expense 
account items which have not been paid by him , re¬ 
port his net income for the year as shown by his 
books when they are balanced at the end of the 
calendar year? 

Section 8 (g) of the act of September 8, 1916, 
states that: 

An individual keeping accounts upon any basis 
other than that of actual receipts and disburse¬ 
ments, unless such other basis does not clearly re¬ 
flect his income, may, subject to regulations made 
by the Commissioner of Internal Revenue, with the 
approval of the Secretary of the Treasury, make his 


QUESTIONS AND ANSWERS. 


63 


return upon the basis upon which his accounts are 
kept, in which case the tax shall be computed upon 
his income as so returned. 

What is meant by the statement in the law that 
all interest paid within the year upon the indebted¬ 
ness of a taxpayer, “except on indebtedness in¬ 
curred for the purchase of obligations or securities 
the interest upon which is exempt from taxation as 
income under this title” may be claimed as a deduc¬ 
tion? 

If a taxpayer, desiring to do his patriotic duty, 
borrowed money to invest in Liberty Loan 3% 
per cent, bonds, or if he borrowed money to invest 
in the bonds of a State, county, or municipality, or 
any security issued under the provisions of the Fed¬ 
eral farm-loan act of July 17, 1916, or any other 
securities the interest from which is not subject to 
income tax as explained in the answer to the 
eighteenth question, the interest paid by the tax¬ 
payer upon the money so borrowed can not be 
claimed as a deduction. All other interest paid 
within the year may be so claimed. 

What forms of taxes can not be claimed as deduc¬ 
tions? 

Taxes assessed against an individual on property 
owned by him to pay for the paving of a street 
contiguous to his property, the construction of a 
sewer, sidewalk, etc., the sprinkling or oiling of a 
street in front of his home, the construction of 
levees to protect, or ditches to drain, property 
owned by him, can not be claimed as deductions. In 


84 


FEDERAL INCOME TAX. 


short, such taxes as are not general in nature and 
are levied on account of some work or privilege 
the benefit of which accrues to a limited number of 
property owners, of which the taxpayer is one, are 
not allowable deductions. 

If I pay any amount of personal income tax foi 
the year 1917, may I claim that amount as a deduc¬ 
tion for the year 1918? 

No. The income tax law states that income taxes 
are not allowable as deductions. Under this pro¬ 
vision income tax paid in 1917 on income received 
in 1916 or any previous year can not be deducted. 

John Doe, while driving an automobile, ran down 
and injured another person. He either paid over a 
certain sum, or paid a judgment rendered against 
him, in settlement of the injury done. Can he claim 
the amount so paid as a loss? 

No. It was not a loss which was incurred in the 
conduct of his business or trade, or which resulted 
from a transaction entered into for profit. 

How am I to determine what amount of loss, re¬ 
sulting from a sale of property, is allowable as a de¬ 
duction? 

The same method of computation should be fol¬ 
lowed as is outlined in the answer to the twenty- 
sixth question. If the result is a loss instead of a 
gain, that loss may be claimed as a deduction, if it 
was connected with your regular business or trade, 
or during the same year you derived gains from 
other transactions entered into for profit but not 


QUESTIONS AND ANSWERS. 


85 


connected with your regular business or trade in 
excess of the amount of your loss. 

In computing amount of profit or loss resulting 
from purchase and sale of securities which is to be 
returned or claimed as a deduction under the pro¬ 
visions of the fifth paragraph of section 5 of the act 
of September 8, 1916, is interest or dividends re¬ 
ceived on the securities during the tax year to be 
taken into consideration? 

Interest and dividends are held to be items of 
current income, returnable as such, and they are 
not to be considered when computing the amount 
of profit or loss which results from a purchase and 
sale. 

A professional man or merchant owns and oper¬ 
ates a “fancy stock farm.” The expenses of opera¬ 
tion exceed the gross receipts. Can the difference 
be claimed as a deduction under the head of 
“losses”? 

No. It is held that where a farm is operated for 
purposes of recreation or pleasure, and not primarily 
for profit, but as a hobby, that farm is not to be 
classed as a commercial enterprise, that it does not 
form a part of its owner’s business or trade and un¬ 
till it is placed upon a profit-paying basis the gross 
receipts are not to be reported under “Gross in¬ 
come” and the expenses are not to be claimed as a 
deduction. This ruling, of course, precludes the 
claiming of the difference between the two amounts 
as a loss. 


86 


FEDERAL INCOME TAX. 


What conditions are necessary in order that a 
debt may be claimed as a deduction? 

It must be (a) a bona fide debt, (b) definitely as¬ 
certained to be worthless and uncollectible during 
the year for which the deduction is claimed, and (c) 
if books are kept it must be charged off within the 
year for which the deduction is claimed and no 
longer considered an asset or carried as such on the 
books. 

At what rates may depreciation be claimed and 
under what conditions? 

As the rate at which depreciation may be claimed 
is dependent, in a greater or less extent, upon local 
conditions, the use to which the property is put, and 
its probable lifetime under normal business con¬ 
ditions, no specific rates at which it may be claimed 
have ever been established. The law states that a 
“reasonable allowance” may be claimed and it is for 
the taxpayer to determine what constitutes a “rea¬ 
sonable allowance.” To compute the amount which 
may be claimed, a taxpayer should determine the 
probable lifetime of the property, then divide its 
cost to him by the number of years it will be usable 
in a business in which employed, and the result thus 
obtained will represent the amount which may be 
claimed each year as a deduction, e. g., a frame 
building, the probable lifetime of which, without re¬ 
pair or replacement, is 25 years, cost $5,000. Di¬ 
vide $5,000 by 25 and claim $200 each year as de¬ 
preciation. 


QUESTIONS AND ANSWERS. 


87 


While each taxpayer must determine the prob¬ 
able lifetime of his property without regard to the 
following figures, it has been estimated that the 
average usable lifetime of a frame building is 25 
years, a brick building, 35 years; a stone building or 
a steel and concrete building, 50 to 100 years. The 
estimated lifetime of ordinary machinery is 10 
years, that of automobiles used for business or farm 
purposes and farm tractors, 4 to 5 years. 

If a taxpayer wishes to claim the full amount of 
depreciation estimated to have occurred in the value 
of a building or other property used for business or 
trade purposes, he may do so, but this precludes his 
claiming a deduction to cover any amount expended 
during the same year in making repairs. If he 
wishes to claim a deduction on account of repairs, 
their cost must be deducted from the full amount 
of depreciation, and the balance may then be 
claimed as a deduction under the heading of “De¬ 
preciation”; that is, if the taxpayer expends $100 in 
making repairs to a building which will depreciate 
in value $200 during the calendar year, he may 
claim $100 as a business expense and $100 as de¬ 
preciation, or he may claim $200 as depreciation 
and nothing for repairs. In short, the aggregate 
deductions claimed on account of repairs and de¬ 
preciation must not exceed the full amount of de¬ 
preciation estimated to have occurred. 

(Note.—The repairs referred to in this paragraph 
are such as are general in character, represent re¬ 
placements, etc. Small items, such as replacement 
of broken window panes, papering, minor repairs, 


FEDERAL INCOME TAX. 


etc., are allowable, even though full amount of de¬ 
preciation has been claimed.) 

In claiming depreciation the following funda¬ 
mental principles must be taken into considera¬ 
tion : 

(a) Only such depreciation as results from ex¬ 
haustion, wear and tear of property, arising out of 
its use or employment in business or trade, can be 
claimed. Depreciation in the value of a home or 
any article of property, such as automobiles, used 
for personal pleasure or convenience, can not be 
claimed; the property must be used for the pur¬ 
pose of producing income. 

(b) Depreciation other than that arising from 
wear and tear, such as a lessening of values due to 
changes in the social or business conditions in the 
neighborhood in which a property is located, 
changes of street grade, or fluctuations in market 
\alues, etc., can not be claimed. 

(c) Depreciation in the value of land, whether 
improved or unimproved, due to ordinary erosion, 
exhaustion, or any other cause can not be claimed. 

(d) Where the value of a piece of machinery or 
any other asset is lessened by reason of the pro¬ 
duction of an improved machine or article, that de¬ 
preciation can not be claimed, as it does not result 
from exhaustion, wear and tear. 

(e) Where, in the course of years, the owner of 
property has claimed its full cost as depreciation in 
his income-tax returns, no further claim will be al¬ 
lowed. 

(f) The value to be cared for by depreciation is 


QUESTIONS AND ANSWERS. 


89 


the actual amount invested in the property and not 
the value which may be arbitrarily or otherwise 
fixed. 

A store or other building has outlived its useful¬ 
ness; the owner tears it down to make room for a 
building of an improved type. Can the value of the 
old building at the time of destruction be claimed as 
depreciation or as a loss? 

No. Losses due to the voluntary removal or de¬ 
struction of buildings, etc., incident to improve¬ 
ments are either a proper charge to the cost of new 
additions or to depreciation already provided, as 
the facts may indicate, but in no case is it a proper 
deduction in determining net income. If, how¬ 
ever, a building is destroyed prior to the close of its 
lifetime, as estimated for the purpose of making de¬ 
preciation charges, that portion of its cost which 
is properly chargeable to the period it might have 
remained in a usable condition may be considered 
a part of the cost of the new building when com¬ 
puting the amount of the gain or profit derived from 
a sale of the latter. 

If the authorities of a municipality declare that a 
building is unsanitary or unsafe for the purposes 
to which put and its destruction is ordered, can the 
losses sustained by the owner be claimed as a de¬ 
duction? 

No; neither as a loss nor as depreciation. 

I bought a patent for $5,000 which, under the pat¬ 
ent laws of the United States, had five years yet to 
run. As the value of this patent depreciates each 


90 


FEDERAL INCOME TAX. 


year on account of the exhaustion of the patent 
period, may a deduction be claimed? 

Yes. The cost of the patent divided by the num¬ 
ber of years it has yet to run, yields an amount 
which may be claimed each year as depreciation. 
In your case this amount is $1,000. 

I understand that depreciation in the value of 
articles for personal use can not be claimed as a de¬ 
duction. However, as actors and actresses are often 
required to furnish their own wardrobes, does not 
the depreciation in the value of such property con¬ 
stitute an allowable deduction? 

If costumes purchased by members of the theat¬ 
rical profession are used exclusively for the pro¬ 
duction of a play and are not adapted for occasional 
personal use, and are not so used, a deduction may 
be claimed on account of such depreciation in their 
value as occurs during the year on account of wear 
and tear arising from their use in the production 
of the play or from their becoming obsolete at the 
close of the production. 

Under what conditions and at what rates may de¬ 
pletion due to the removal of a natural product from 
oil or gas wells, mines, quarries, etc., be claimed? 

Paragraph 8 of section 5 of the act of September 
8, 1916, as amended by the war-revenue act of Oc¬ 
tober 3, 1917, states how the amount of depletion 
allowable as a deduction is to be ascertained, but 
as so many factors are to be considered in comput¬ 
ing depletion, an answer which will be applicable 
in all cases where depletion occurs can not here be 


QUESTIONS AND ANSWERS. 


91 


given. Such factors are covered in considerable 
detail by Treasury Decisions 2446 and 2447 and the 
Regulations, copies of which may be obtained from 
the Collector of Internal Revenue for your district, 
and where these Decisions and Regulations do not 
afford all the information necessary in your par¬ 
ticular case a detailed statement covering all the 
facts and figures in your case should be forwarded 
to the Collector, with a request for a ruling. 

With reference to the ninth paragraph of section 
5 of the act of September 8, 1916, as amended, how 
am I to determine to what extent contributions or 
gifts made to corporations or associations, organ¬ 
ized exclusively for religious, charitable, scientific 
or educational purposes, societies for the prevention 
of cruelty to children or animals, may be claimed as 
a deduction? 

You should first ascertain what your taxable net 
income would be were you not entitled to a deduc¬ 
tion on account of contributions or gifts made to 
such corporations, associations or societies, and 
then if the aggregate of your contributions and gifts 
made during the year to such organizations does 
not exceed 15 per cent of your taxable net income 
so computed their aggregate amount may be 
entered in the space provided therefor under “Gen¬ 
eral deductions’' on a personal return form. If 
such aggregate amount exceeds 15 per cent of your 
taxable net income so computed, the excess can not 
be claimed. 

For example: Your total taxable net income 
amounts to $20,000. During the year you have con- 


92 


FEDERAL INCOME TAX. 


tributed to the National Red Cross $1,000, to the 
Young Men’s Christian Association $1,000, toward 
the construction of a new church $1,000, and to the 
Associated Charities of your home city $500, a total 
of $3,500. Fifteen per cent of your total net in¬ 
come amounts to $3,000, therefore this latter amount 
may be claimed as a deduction and the balance of 
your contributions and gifts may not be claimed. 

In claiming a deduction on account of such con¬ 
tributions or gifts there should be shown on the 
return of income (a) the name and address of each 
organization to which a contribution or gift was 
made and (b) the date and amount of each con¬ 
tribution or gift. 

Where the contribution or gift was other than 
money the basis for calculation of its value shall 
be the fair market value of the property given at 
the time of contribution or gift. 

During 1917 I contributed $100 toward the sup¬ 
port of a needy family. May this contribution be 
claimed as a deduction? 

Contributions or gifts made to individuals do not 
constitute allowable deductions. 

Are partnerships subject, as such, to the Federal 
income tax and required to render annual income- 
tax returns? 

No. Section 8 (e) of the act of September 8, 
1916, as amended by section 1204 of the war-reve¬ 
nue act provides that: 

Persons carrying on business in partnership shall 
be liable for income tax only in their individual ca- 


QUESTIONS AND ANSWERS. 


93 


parity, and the share of the profits to which a part¬ 
ner would be entitled if the same were divided, 
whether divided or otherwise, shall be returned for 
taxation and the tax paid under the provisions of 
this title. 

This section further states how the distributive 
share of partnership earnings or profits, which is 
taxable in the hands of the individual member, is 
to be ascertained. 

While annual returns are not required of a part¬ 
nership for income-tax purposes, the Commissioner 
of Internal Revenue or any district collector is au¬ 
thorized to request at any time that a true and ac¬ 
curate return of a partnership’s earnings, profits and 
income shall be made, excepting only the income 
which is exempt from taxation under the provi¬ 
sions of section 4 of the act of September 8, 1916, 
as amended, which income is specified in the answer 
to the eighteenth question. The required return 
shall set forth all the items of “Gross income” and 
general deductions, and the names and addresses 
of the individuals who would be entitled to the net 
earnings, profits or income, if distributed, and the 
distributive share of each. 

It is held that the income from a partnership ac¬ 
crues to the individual partner at the time his dis¬ 
tributive interest is determined and reducible to 
possession. In the returns of income made by indi¬ 
viduals for the calendar year, therefore, there should 
be included such income accruing from the busi¬ 
ness of the partnership for its business or fiscal 
year as may have been definitely ascertained by 


94 


FEDERAL INCOME TAX. 


means of a book balance, whether distributed or 
not. In other words, members of partnerships are 
required to make returns of income like other indi¬ 
viduals for the calendar year, and should include 
in their returns the net proceeds of their interests 
in partnership profits ascertained at the end of the 
business year falling within the calendar year for 
which the individual return is being rendered. 

All domestic partnerships having a net income of 
$6,000 or more for 1917, or any subsequent year, are 
required to render excess-profits tax returns. 

A partnership was organized in July, 1913, and in 
1917 one of its individual members sold his interest 
therein and retired. How is he to determine the 
amount of gain or profit derived from the transac¬ 
tion which is returnable for income-tax purposes? 

From the selling price should be deducted the 
amount of capital he has actually invested in the 
partnership’s assets and the difference reported 
under “Gross income.” 

What forms of income, if any, are subject to with¬ 
holding of tax at the source when paid to a partner¬ 
ship? 

As the income received by a partnership is not 
subject to income tax in the hands of the partner¬ 
ship, no tax is to be withheld from income paid to 
a partnership, either domestic or foreign. 

Who are classed as fiduciaries? 

The term “fiduciary” is one that applies to all 
persons or corporations that occupy positions of pe¬ 
culiar confidence toward others, such as trustees, 
executors, or administrators, and a fiduciary for 


QUESTIONS AND ANSWERS. 


95 


income-tax purposes is any person or corporation 
that holds in trust an estate of another person or 
persons. 

There may be fiduciary relationship between an 
agent and the principal, but the word “agent” does 
not denote a “fiduciary” within the meaning of the 
income-tax law. 

A fiduciary relationship for the purposes of the 
income tax can not be created by a power of at¬ 
torney. An agent having entire charge of property, 
without authority to effect and execute leases with 
tenants entirely on his own responsibility, and 
without consulting principal, paying taxes and ex¬ 
penses and all other charges in connection with 
the property out of funds in his hands from col¬ 
lections of rents, merely turning over the net profits 
from the property periodically to his principal by 
virtue of authority conferred upon him by power of 
attorney, is not a “fiduciary” within the meaning 
of the income-tax law. In all cases where no legal 
trust has been created in the estate controlled by the 
agent and attorney the liability under the law rests 
with the principal. 

A deed of trust must be absolute so far as the 
conveyance of title is concerned, and irrevocable 
by the donor. Otherwise the income from the prop¬ 
erty in question will be held for income-tax pur¬ 
poses to accrue to the donor and must be accounted 
for by him. 

Is the duly appointed guardian of a minor, or the 
conservator of an estate of an incompetent person, 


96 


FEDERAL INCOME TAX. 


required to render personal returns for and in behalf 
of his ward? 

Yes, under the same conditions as would the ward 
if competent to act for himself, and in so doing the 
personal exemption to which the ward is entitled 
may be claimed. 

Is the duly appointed administrator of an estate 
of a deceased person, who died during the tax year, 
required to render a personal return for and in be¬ 
half of the deceased, and also his estate? 

If the net income of the deceased from January 
1 of the year during which he died to the date of 
his death equaled or exceeded $1,000, in the case 
of an unmarried person, or $2,000 in the case of a 
married person, the administrator should file a per¬ 
sonal return, executed on Form 1040, for and in be¬ 
half of the deceased, and a return executed on the 
same form will also be required of him for and in 
behalf of the estate, if it remains in process of ad¬ 
ministration and its net income from the date of 
the decedent’s death to December 31 equals or ex¬ 
ceeds $1,000. 

The administrator will be required to pay and 
will be held liable for any amount of tax which may 
be assessed against any such return rendered by 
him. 

Is the trustee having charge of a trust estate, the 
net income of which is regularly distributed among 
the beneficiaries, required to render a return? 

Yes; if any one of the beneficiaries is unmarried 
and his or her distributive interest in the net income 


QUESTIONS AND ANSWERS. 


97 


of the trust equals or exceeds $1,000. Yes, also, if 
all the beneficiaries are married and the distribu¬ 
tive interest of any one equals or exceeds $2,000. 
Otherwise, no. 

It should be understood, however, that this 
answer is applicable only in a case where all the 
beneficiaries are citizens or residents of the United 
States. If any portion of the net income of an es¬ 
tate of trust is distributed to a non-resident alien 
beneficiary a return is required, and the normal in¬ 
come tax of 2 per cent, is to be deducted and with¬ 
held from so much of the amount remitted to such 
beneficiaries as was not derived from dividends or 
from the net earnings of corporations, joint-stock 
companies, etc., subject to a like tax, or has been 
subject to the withholding of the normal tax at the 
source. 

In a case where an estate is in process of admin¬ 
istration and the fiduciary renders returns covering 
the income and deductions of the estate, and pays 
the amount of normal and additional tax assessed 
thereon, will the net income be subject to tax in the 
hands of the beneficiaries when received by them? 

No. The estate during administration is held to 
be a taxable entity; the fiduciary having it in charge 
is required to render returns and pay the taxes as¬ 
sessed thereon, and, these taxes having once been 
paid, such income is exempt from tax in the hands 
of the beneficiaries who receive the same. 

The income of estates in process of administra¬ 
tion or in trust for accumulation of income is taxed 
as for an unmarried person. 


98 


FEDERAL INCOME TAX. 


Is any other than a return of income required of a 
fiduciary? 

Yes. Fiduciaries come within the provisions of 
section 28 of the act of September 8, 1916, as 
amended by section 1211 of the war-revenue act, 
and will be required to render to the Commissioner 
of Internal Revenue a return of information, if, 
during the tax year, any income has been paid to 
an individual, partnership, corporation, joint-stock 
company, etc., equal to, or in excess of, $800. 

Is a fiduciary required to deduct and withhold at 
the source any amount of normal income tax? 

Yes. If any distribution or payment of fixed or 
determinable gain, profit, or income is made to a 
nonresident alien individual, 2 per cent, is to be de¬ 
ducted and withheld. 

I act as trustee of a trust estate. A part of the net 
income which accrues to the trust is retained and 
becomes a part of the corpus of the trust estate. 
Am I required to render a return for and in behalf 
of the trust other than the fiduciary return required 
of me? 

If the trust itself is named as a beneficiary and 
the amount of net income which accrues to it as a 
beneficiary equals or exceeds $1,000, a return exe¬ 
cuted on Form 1040, for and in behalf of the trust, 
in addition to the return executed on Form 1041, 
is required. 

May an executor or administrator render his fidu¬ 
ciary returns prior to the close of the calendar year 


QUESTIONS AND ANSWERS. 


99 


in a case where the estate is finally distributed and 
he is discharged from and relieved of his trust dur¬ 
ing that year? 

An administrator or executor may, immediately 
after his discharge upon final accounting, file with 
the proper collector of internal revenue a return 
covering the income and deductions of the estate 
for the period January 1 to the date of his discharge. 
To such a return there should be attached a certi¬ 
ficate, under seal, setting forth the fact of the final 
accounting and discharge of the administrator or 
executor, and the tax assessed against that return 
may be paid immediately after receipt from the col¬ 
lector of a notice of the amount assessed and a de¬ 
mand therefor. 

An individual, now deceased, held a life insurance 
policy in which his estate was named as the bene¬ 
ficiary. Are the proceeds of this policy subject to 
income tax? 

The proceeds of life insurance policies payable to 
the estate of the decedent, when received by his 
executor or administrator, are, in the amount by 
which such proceeds exceed the premium or pre¬ 
miums paid by the decedent, income to the estate, 
and are to be accounted for by the executor or ad¬ 
ministrator. 

Where, in the case of more than one trust, the 
creator in each instance is the same person, and the 
trustee in each instance is the same, how will the 
trustee account for the income of the several trusts? 

The trustee should make a single return on Form 


100 


FEDERAL INCOME TAX. 


1041 for all the trusts in his hands, notwithstanding 
the fact that they arise from different instruments. 
When a trustee holds trusts created by different 
persons for the benefit of the same beneficiary, he 
should make return for each trust separately on 
Form 1041. This ruling is based on the identity of 
the creator and the identity of the trustee of the 
various trusts and not upon the identity of the 
beneficiary. 

May the expenses of administration of an estate 
be claimed by the fiduciary as deductions in com¬ 
puting the estate’s liability for income tax? 

Expenses of administration, such as court costs, 
attorneys’ fees, executor’s commissions, etc., are 
chargeable against the corpus of the estate and are 
not allowable as deductions to the estate or the 
beneficiaries thereof. 

What returns are required from a fiduciary in the 
United States where the beneficiaries of the trust 
are non-resident alien individuals? 

Where a fiduciary in the United States is the re¬ 
cipient of trust income for which there is but one 
beneficiary, and that beneficiary a nonresident alien, 
the fiduciary will be required to make full and com¬ 
plete return on income-tax Form 1040 or 1040A, as 
the case may be, for this trust income on behalf of 
the nonresident alien and pay any and all tax shown 
by such return to be due. Where there are two or 
more beneficiaries, one or all of whom are non¬ 
resident aliens, the fiduciary shall render a return 
on Form 1041 for and in behalf of the trust estate 


QUESTIONS AND ANSWERS. 101 

and a personal return on Form 1040 or 1040A for 
each nonresident alien beneficiary. 

At what rates and from what income is the nor¬ 
mal income tax now to be deducted and withheld at 
the source? 

All persons, corporations, partnerships, associa¬ 
tions or insurance companies paying any amount 
of fixed or determinable gain, profit or income, other 
than that paid as dividends on the capital stock or 
from the net earnings, profits or income of corpor¬ 
ations, joint-stock companies, etc., subject to a like 
tax, to a nonresident alien individual, is required 
to deduct and withhold normal tax at the rate of 
2 per cent from the entire amount paid. 

Normal income tax at the rate of 6 per cent is to 
be withheld from all payments of interest upon 
bonds, mortgages, deeds of trust, or other similar 
obligations of domestic or other resident corpora¬ 
tions, joint-stock companies, associations or insur¬ 
ance companies having no office or place of business 
in the United States. 

When dividends are paid upon the capital stock 
or from the net earnings of domestic or other resi¬ 
dent corporations, joint-stock companies, associa¬ 
tions or insurance companies, to foreign corpora¬ 
tions, joint-stock companies, etc., having no office 
or place of business in the United States, normal 
tax at the rate of 2 per cent is to be withheld. 

No amount of tax is to be withheld from any pay¬ 
ment of income made to a partnership, whether do¬ 
mestic or foreign. 


102 


FEDERAL INCOME TAX. 


The normal income tax is not to be deducted and 
withheld from any payment of income made to a 
citizen or resident of the United States except when 
derived from interest on a bond, mortgage, or other 
obligation issued by a domestic or resident corpor¬ 
ation which contains a contract or provision by 
which the obligor agrees to pay any portion of the 
tax imposed by the Federal income-tax law upon 
the obligee or to reimburse the obligee for any por¬ 
tion of the tax which the obligor may be required 
or permitted to pay thereon, or to retain therefrom, 
under any law of the United States. That is, if 
interest is paid upon any obligation of a domestic 
or resident corporation, joint-stock company, etc., 
which contains a so-called “tax-free” or “no-deduc¬ 
tion” clause to a citizen or resident of the United 
States normal tax at the rate of 2 per cent is to be 
withheld, unless personal exemption is claimed, 
and then only from the amount paid in excess of 
the exemption claimed. 

A State, county, municipality, or any other polit¬ 
ical subdivision of a State is not required to with¬ 
hold any amount of income tax from interest which 
it may pay upon its own obligations, even though 
such interest is paid to non-resident alien individ¬ 
uals or foreign corporations. 

Is a corporation required to actually deduct and 
withhold the normal income tax from the amounts 
of interest it pays on bonds which contain a so- 
called “tax-free” or “no-deduction” clause; or may 
it pay that interest in full and hold itself liable for 
payment of the tax from its own funds? 


QUESTIONS AND ANSWERS. 


103 


The stipulation in the bonds of a corporation 
whereby the tax which may be assessed against 
them, or the income therefrom, is guaranteed, is 
held to be a contract wholly between the corpora¬ 
tion and the bondholder. The debtor corporation 
will be held liable for the amount of tax due, 
whether that tax is actually deducted and with¬ 
held, or the interest paid in full and responsibility 
for payment of the tax assumed by the corpora¬ 
tion. 

How may a citizen or resident of the United 
States secure the benefit of personal exemption to 
which he is entitled when receiving a payment of 
interest on bonds containing a so-called “tax-free” 
or “no-deduction” clause? 

By attaching to the interest coupons an income- 
tax exemption certificate, Form 1001, revised Jan¬ 
uary, 1918. If exemption is not desired, Form 1000, 
revised January, 1918, should be used 

Will I be required to make a return of, and be 
held liable for, the amount of normal tax which I 
deducted and withheld during the year 1917, prior 
to the passage of the war-revenue act of October 
3, 1917, from income paid to citizens or residents 
of the United States? 

No. Section 1212 of the act of October 3, 1917, 
provides that any amount heretofore withheld by 
any withholding agent, as required by Title I of 
the act of September 8, 1916, on account of the tax 
imposed upon the income of any individual, a citi¬ 
zen or resident of the United States, for the calendar 


104 


FEDERAL INCOME TAX. 


year of 1917, except that withheld from interest paid 
on bonds containing a “tax-free” or “no-deduction” 
clause, shall be released and paid over to such in¬ 
dividual. 

Therefore, any amount of normal tax withheld 
during the year 1917 from income paid to a citizen 
or resident of the United States, except interest on 
bonds and mortgages or deeds of trust, or other 
similar obligations of corporations, joint-stock com¬ 
panies, etc., containing a so-called “tax-free” or 
“no-deduction” clause, may now be released and 
paid over to such individual and no return or pay¬ 
ment of such tax will be required from the with¬ 
holding agent. 

How is tax withheld at the source to be returned 
and paid? 

Tax withheld from income other than interest on 
corporate obligations shall be reported to the col¬ 
lector of internal revenue for your district on in¬ 
come tax Form 1042 on or after February 1, but 
not later than March 1 of the year next succeeding 
the year during which the withholding occurred. 
Tax withheld from interest on corporate obliga¬ 
tions shall be reported to the collector on Form 
1012 within 20 days after the close of the month 
during which the withholding occurred, and a sum¬ 
mary of such monthly returns shall be made to the 
collector on or after February 1, but not later than 
March 1, on Form 1013. 

Payment of the amount of tax assessed against a 
withholding return shall be made to the collector 


QUESTIONS AND ANSWERS. 


105 


of internal revenue in whose district the withhold¬ 
ing agent is located. 

What should a withholding return show? 

The name and address of the withholding agent, 
character of income, and the name and address of 
the recipient, amount of income, exemption claimed, 
if any, and the amount of tax withheld. 

From whom are returns of information required? 

Section 26, act of September 8, 1916, as amended 
provides that every corporation, joint-stock com¬ 
pany, or association or insurance company subject 
to the Federal income tax on its own income shall, 
when required by the Commissioner of Internal 
Revenue, render a correct return, duly verified un¬ 
der oath, of its payments of dividends whether made 
in cash or its equivalent or in stock, which return 
shall give the names and addresses of the stock¬ 
holders, the number of shares owned by each, the 
aggregate amount of dividends received by each, 
and the tax years and the applicable amounts in 
which such dividends were earned. 

Section 27, same act, provides that every person, 
corporation, partnership, or association doing busi¬ 
ness as a broker on any exchange or board of trade 
or other similar place of business shall, when re¬ 
quired by the Commissioner of Internal Revenue, 
render a correct return, duly verified under oath, 
showing the names and addresses of customers 
for whom any business has been transacted, with 
such details as to profits, losses, or other informa¬ 
tion which the Commissioner of Internal Revenue 


106 


FEDERAL INCOME TAX. 


may require to enable him to determine whether 
all income tax due on profits or gains of such cus¬ 
tomers has been paid. 

Section 28, same act, provides that all persons, 
corporations, partnerships, associations and insur¬ 
ance companies making a payment to any person, 
corporation, partnership, association or insurance 
company of interest, rent, salaries, wages, premiums 
or other items of fixed and determinable gains, 
profits and income (other than dividends on stocks 
or gains or profits derived from transactions on 
any exchange or board of trade or other similar 
place of business) of $800 or more during any cal¬ 
endar year shall render a true and accurate return 
covering the payments made, which return shall dis¬ 
close the names and addresses of the recipients of 
such payments and the aggregate amount paid to 
each during the calendar year. 

Under this section returns of information will 
also be required, regardless of amounts paid, in the 
case of payments of interest upon bonds and mort¬ 
gages or deeds of trust or other similar obligations 
of corporations, joint-stock companies, associations, 
and insurance companies and also in the case of col¬ 
lections of items (not payable in the United States) 
of interest upon the bonds of foreign countries and 
interest upon bonds and dividends from the stock 
of foreign corporations, from all persons, corpora¬ 
tions, partnerships or associations which under¬ 
take as a matter of business or profit the collection 
of foreign payments of interest or dividends by 
means of coupons, checks or bills of exchange. 


QUESTIONS AND ANSWERS. 


107 


Under the provisions of section 9 of the act of 
September 8, 1916, as amended, no person, corpora¬ 
tion, partnership or association can undertake as a 
matter of business or for profit the collection of 
foreign payments of interest or dividends by means 
of coupons, checks or bills of exchange with¬ 
out first obtaining a license from the Commissioner 
of Internal Revenue, and whoever knowingly un¬ 
dertakes to collect such payments as aforesaid with¬ 
out having obtained a license therefor or without 
complying with prescribed regulations shall be 
deemed guilty of a misdemeanor and for each of¬ 
fense be fined in a sum not exceeding $5,000 or im¬ 
prisoned for a term not exceeding one year, or both, 
in the discretion of the court. 

The returns which will be required under the pro¬ 
visions of sections 26, 27, and 28 are to be rendered 
under such rules and regulations as the Commis¬ 
sioner of Internal Revenue, with the approval of the 
Secretary of the Treasury, may prescribe, which 
rules and regulations are now in course of prepara¬ 
tion and will soon be announced. 

Where a person receives a cash compensation for 
services rendered, and in addition thereto commis¬ 
sions, living expenses, or other allowances, is the 
aggregate amount of cash plus the value to such 
person of the allowances to be returned? 

Yes. A return under section 28 is required in 
each case where the cash compensation plus the 
value of the allowances equals or exceeds $800 for 
the tax year. 


108 


FEDERAL INCOME TAX. 


When does payment of income tax assessed 
against an individual become due and payable? 

The tax is to be paid upon receipt of a notice from 
the collector of internal revenue to the amount of 
tax due, and at all events not later than June 15. 
If the tax is not paid by June 15, the collector will 
issue a second notice and demand therefor, and if 
at the expiration of 10 days from the date of this 
notice the tax remains unpaid it becomes delinquent. 
The penalty for such delinquency is 5 per cent of 
the amount of tax unpaid and interest at the rate 
of 1 per cent per month upon such tax from the 
time thp same became due to date of payment. 

What recourse has a taxpayer when he feels that 
he has been assessed with income tax in excess of 
his true tax liability? 

He may exercise his right to file with the collector 
of internal revenue for his district a claim for abate¬ 
ment, executed on Form 47, copies of which may be 
obtained from the collector. The filing of such a 
claim prior to the due date of the tax acts as a stay 
to the collection of the 5 per cent penalty for delin¬ 
quency in payment, provided, in case of rejection 
of the claim, the tax due is paid within 10 days from 
the date and notice of such rejection. However, 
in case of rejection, interest at the rate of 1 per 
cent per month will run from the date of the notice 
served prior to the filing of the claim and until the 
tax due is paid. 

It should be understood, however, that the filing 
of a claim for abatement of tax alleged to have been 
erroneously assessed does not operate as a suspen- 


QUESTIONS AND ANSWERS. 


109 


sion of the collection of the tax. If the collector 
feels that the suspension of collection will jeopard¬ 
ize the interests of the Government, he may col¬ 
lect the tax and leave the taxpayer to his remedy 
by a claim for refund. 

On my 1916 return I was assessed with income 
tax in excess of my true tax liability and same was 
paid. How may I secure a refund? 

By filing with the collector of internal revenue 
for your district a claim for refund, executed on 
Form 46, copies of which may be obtained from 
the collector. 

In 1917 I paid $50 income tax in excess of my 
true tax liability for the year 1916. Can this excess 
payment be applied in payment of a later assess¬ 
ment of tax. 

No. An excess payment of tax in one year can 
not be offset against an assessment of tax for a 
subsequent year. 

Can an assessment of income tax be paid in in¬ 
stallments? 

Section 1009, act of October 3, 1917, provides 
that taxpayers liable for income tax may make pay¬ 
ments of such tax in advance, in installments, or 
in whole, of an amount not in excess of the esti¬ 
mated tax which will be due from them, and upon 
determination of the tax actually due, any amount 
paid in excess shall be refunded as taxes erroneous¬ 
ly collected, and credit against such tax so paid in 
advance may be allowed in an amount not to ex¬ 
ceed 3 per cent per annum, collected upon the 


110 


FEDERAL INCOME TAX. 


amount so paid from the date of such payment to 
the date now fixed by law for such payment; but 
no such credit shall be allowed on payments in ex¬ 
cess of taxes determined to be due, nor on payments 
made after four and one-half months after the close 
of the taxable year. In case of an undertaking to 
pay tax in installments, and default of any install¬ 
ment, the penalty for failure to pay tax when due 
will attach. 

Rules for the calculation of the 3 per cent credit 
on account of advance payment of tax, or a reduc¬ 
tion otherwise of the amount of tax assessable on 
a return of income by means of advance payments, 
are fully set forth in Treasury Decision 2622. 



FEDERAL UNDISTRIBUTED PROFITS TAX. Ill 


(2). FEDERAL UNDISTRIBUTED PROFITS 
TAX. 

BRIEF The Federal Undistributed Profits 
HISTORY. Tax on corporations was passed by 
the Congress on October 3, 1917, and 
is in the nature of an amendment to the Federal 
Income Tax Law. The object of the tax is to com¬ 
pel corporations to distribute their profits in divi¬ 
dends so that the Government may obtain the bene¬ 
fit of the surtax upon the individual incomes of 
stockholders. 

WHO ARE SUBJECT TO THE TAX. 

BUSINESS The tax applies only to busi- 

CORPORATIONS. ness corporations organized 
for profit. 

HOW THE TAX IS FIGURED. 

10 PER CENT. The tax is an addition to the 
Federal Income Tax and is a tax 
of ten per cent, upon the net taxable income, in¬ 
cluding dividends received for the taxable calendar 
or fiscal year, remaining undistributed six months 
after the close of such year. 

HOW AVOID. The tax is not assessed in the 
following cases: 

(a) Where the undistributed net income is paid 
out in dividends. 


112 FEDERAL UNDISTRIBUTED PROFITS TAX. 

(b) Where the undistributed net income is actu¬ 
ally invested and employed in the business. 

(c) Where the undistributed net income is in¬ 
vested in obligations of the United States issued 
after September 1, 1917. 

If at any time the Treasury Department finds 
that the undistributed net income is not employed 
or invested as above, it is authorized to assess a 
tax of fifteen per cent. 

The tax applies to the year 1917 and thereafter 
or to such proportion of net taxable income for 
fiscal years ending in 1917 as the period in 1917 
bears to the whole fiscal year. 

Whenever, in the opinion of the Secretary of the 
Treasury, undistributed earnings of a corporation 
have been permitted to accumulate beyond the rea¬ 
sonable needs of the business, the stockholders are 
liable to an additional tax at the surtax rates upon 
their share of such undistributed earnings as 
though the same had been received in dividends. 

The amount of undistributed earnings subject to 
the tax is based upon the increase in the surplus 
balance at the close of the year as compared with 
the surplus balance at the beginning of the year, 
allowing for increase in assets, decrease in liabilities 
or in dividends. The net increase in current assets 
over current liabilities is subject to the 10 per cent, 
tax unless it is conclusively shown by the corpora¬ 
tion that such increase has been retained to pro¬ 
vide for an actual increase in business or for addi¬ 
tions to plant or the reduction of bonded or other 
fixed liabilities. 


FEDERAL UNDISTRIBUTED PROFITS TAX. 113 

The Corporation Income Return calls for: 

(a) Total net income of taxable year preceding 
that for which the Return is made less Income Tax 
paid thereon. 

(b) Amount of such income remaining undistrib¬ 
uted six months after the close of that year. 

(c) Amount of such income remaining undis¬ 
tributed twelve months after the close of that year. 

(d) Total surplus and undivided profits at close 
of the tax year. 

The tax is based upon the above figures. 

TAX RETURNS REQUIRED. 

The Federal Income Tax Law makes no pro¬ 
vision for Returns covering undistributed net in¬ 
come. 

The method of assessing and collecting this tax 
has not yet been made public. 


114 


FEDERAL EXCESS PROFITS TAX. 


(3). FEDERAL EXCESS PROFITS TAX. 

BRIEF. On March 3, 1917, the Congress en- 
HISTORY. acted the first so-called Excess Profits 
Tax Law, being a tax of 8 per cent on 
net taxable income of partnerships and corporations 
in excess of 8 per cent of their invested capital. 

On October 3, 1917, the Congress repealed the 
first law and enacted the present Excess Profits Tax 
Law which affects individuals as well as partner¬ 
ships and corporations and is based upon percent¬ 
ages of business income derived from nominal or 
invested capital over and above certain fixed de¬ 
ductions and certain variable deductions based upon 
profits of the same business during the so-called 
pre-war period of 1911, 1912 and 1913. 

WHO ARE SUBJECT TO THE TAX. 

The following are subject to the Excess Profits 
Tax: 

(a) Taxable individuals who received a salary or 
are engaged in a business or profession where their 
net taxable income exceeds $6,000. 

(b) Taxable nonresident aliens having a net busi¬ 
ness income of $3,000 or more from sources within 
the United States. 

(c) Taxable domestic partnerships having a net 
taxable income of $6,000 or more and taxable for¬ 
eign partnerships having net taxable income! of 
$3,000 or more from sources with the United States. 

(d) Taxable corporations having a net taxable in¬ 
come of $3,000 or more. 


federal excess profits tax. 


115 


WHO ARE NOT SUBJECT TO THE TAX. 

The following are not subject to the Excess 
Profits Tax: 

(a) Individuals,! partnerships and corporations 
whose net taxable income is less than the above 
figures. 

(b) Individuals, partnerships and corporations 
which are exempt under the Federal Income Tax 
Law. 

(c) Officers and employees of the United States 
or of the Commonwealth to the extent of their sal¬ 
aries. 


FIOW THE TAX IS FIGURED. 

The Excess Profits Tax applies only to business 
and professional income and not to income derived 
from outside investments. Business and profes¬ 
sional income is divided into two classes, viz.— 
Nominal Capital and Invested Capital. 

NOMINAL The Nominal Capital class in- 
CAPITAL. eludes: 

(a) Salaries, wages and compensation for per¬ 
sonal services. 

(b) Professions, brokers, trades and business em¬ 
ploying no capital or only nominal capital. 

(c) Business employing more than nominal capi¬ 
tal to provide for deferred income, salaries, wages, 
accommodations and equipment where the earnings 
are principally derived from personal services and 
where the owners take an active part in the con¬ 
duct of the business. 


116 


FEDERAL EXCESS PROFITS TAX. 


The tax is at the rate of 8 per cent upon the net 
income in excess of certain deductions, viz.—in 
the case of an individual or partnership the exemp¬ 
tion is $6,000; in the case of a corporation the ex¬ 
emption is $3,000. 

INVESTED The Invested Capital class in- 

CAPITAL. eludes: 

(a) Business employing substantial capital for 
the purchase and sale of merchandise or securities, 
guaranteeing accounts, or any trade or business 
where the earnings are the result of an investment 
of capital rather than derived from personal serv¬ 
ices. 

Net business income which is based upon Invest¬ 
ed Capital is taxed upon a percentage basis, viz.: 

(a) Find the invested capital for the tax year. 

(b) Find the net income for the tax year. 

(c) Find the allowed deduction by taking the 
same percentage of the average invested capital 
for the tax year as the average net income for the 
pre-war years of 1911, 1912 and 1913 bears to the 
average invested capital for the same years (but 
not less than 7 per cent nor more than 9 per cent) 
and adding thereto $6,000 in the case of an indi¬ 
vidual or partnership and $3,000 in the case of a 
corporation. 

(d) The tax can then be determined by applying 
the following:— 

FORMULA FOR EXCESS PROFITS TAX 
FIRST STEP: 

Invested Capital for the tax year $.= A 



FEDERAL EXCESS PROFITS TAX. 117 

Net Income during the tax year $.= B 


Invested capital during the 
Pre-war period: 

1911 $. 

1912 $. 

1913 $. 

3 

Average $.= C 

Net Income during the 
Pre-war period: 

1911 $. 

1912 $. 

1913 $. 

3 

Average $.= D 

THE DEDUCTION. 

SECOND STEP: 

Find the percentage of net in¬ 
come for the pre-war period 

D 

— xlOO=.% 

c 

Find the same percentage (E) of 
the 1917 Invested Capital (A), 

(but not less than 7 nor more 
than 9 per cent.). 

Add $3,000 (corporation) or 
$6,000 (individual or partner¬ 
ship) deduction . 

Total Deduction (F -f- G)... 


$.=E 


$.== F 


$ 


a: o 




















118 


FEDERAL EXCESS PROFITS TAX. 


THIRD STEP: 

Net Income. 

15% of A = $. 

5% of A = $. 

5% of A = $. 

8% of A=$. 

Balance of B = $. 


Deduction. 

Less $. @ 20% $ 

Less $. @25% $ 

Less $. @ 35% $. 

Less $. @ 45% $ 

Less $. @ 60% $ 


Total ExcessPro- 

Deduction $. fits Tax $, 


Total 

Net Income $ 


The computation should be continued until the 
percentage of invested capital for 1917 (A) equals 
the amount of the net income for 1917 (B). 

Corporations or partnerships authorized to make 
Fiscal Year Returns should vary the above to fit 
their own fiscal year dates. 


TAX RETURNS REQUIRED. 

WHO FILES. Excess Profits Tax Returns are re¬ 
quired from: 

(a) Taxable individuals receiving salaries or net 
business income in excess of $6,000. 

(b) Taxable partnerships having a net taxable in¬ 
come of $6,000 or more. 

(c) Taxable corporations and foreign; partner¬ 
ships having a net taxable income of $3,000 or more. 

WHEN DUE. Returns are due on or before 
March 1 where based on the calen¬ 
dar year and in the case of partnerships and cor¬ 
porations authorized to use their own fiscal year 
are due sixty days after the close of such fiscal 
year. 





















ALPHABETICAL SUMMARY. 


119 


PAYABLE. The Excess Profits Taxes are pay¬ 
able June 15th except in the case of 
corporations using their own fiscal year, when they 
are payable 165 days after the close of such year. 
Payments may be anticipated in certain cases. 

ALPHABETICAL SUMMARY OF THE LAW. 

APPEALS. Appeals under the Excess Profits Tax 
Law are the same as under the Fed¬ 
eral Income Tax Law. 

AVERAGE Invested Capital and Net Income in 
CAPITAL. certain cases are required to be aver¬ 
aged monthly for the pre-war period 
and for the current tax year. 

BUSINESS The Excess Profits Tax applies only 
INCOME. to business income including salaries, 
hence an individual who has retired 
from business and whose only income is from se¬ 
curities and investments is exempt. 

CAPITAL. See “Average Capital”, “Invested 
Capital”, “Nominal Capital”. 

CORPORATIONS. Taxable corporations are re¬ 
quired to make returns if 
their net taxable income is $3,000 or more and are 
taxed on the excess according to the method ex¬ 
plained under title “How the Tax is Figured.” 
Corporations exempt under the Federal Income Tax 
law are exempt under the Excess Profits Tax law. 


120 


FEDERAL EXCESS PROFITS TAX. 


DEDUCTIONS. The deduction allowed from sal¬ 
aries or business income is made 

up of two parts: 

(a) A fixed deduction of $6,000 allowed an indi¬ 
vidual or partnership and $3,000 allowed a corpora¬ 
tion. 

The partnership fixed deduction does not vary 
with the number of partners. 

(b) A variable deduction which is the same per¬ 
centage of the average invested capital for the tax 
year as the average net income for the pre-war 
years of 1911, 1912 and 1913 bears to the average 
invested capital for the same years except however 
that the variable deduction cannot be less than 7 
per cent or more than 9 per cent of the average 
invested capital for the tax year. 

Where the tax-payer will accept a deduction at 
the 7 per cent rate he is not required to give any 
pre-war figures in his Return. 

New Business. Where a business was not in ex¬ 
istence during at least one of the 
pre-war years of 1911, 1912 and 1913, the variable 
deduction is 8 per cent. 

Old Business Where a present business is a con- 
Taken Over, tinuation of a former business in ex¬ 
istence during at least one full year 
of the pre-war period, the pre-war figures of the 
former business determine the variable deduction. 

Low Pre-War Where pre-war profits were ab- 
Profits. normally low the Treasury Depart¬ 

ment is authorized to allow a vari- 


ALPHABETICAL SUMMARY. 


121 


able deduction equal to that of a similar line of 
business where such profits were normal. 

INDIVIDUALS. Taxable individuals receiving a 
salary in excess of $6,000 or net 
profits in excess of $6,000 from a business or profes¬ 
sion which employs no capital or only a nominal 
capital, are required to make a Return on March 
1st, and pay an Excess Profits Tax of 8 per cent, 
on such excess. 

Taxable individuals engaged in a business em¬ 
ploying Invested Capital are taxed on a percentage 
basis. See title “How the Tax is Figured.” 

An individual whose business is based upon in¬ 
vested capital is allowed in determining the net 
income to charge as a business expense the rea¬ 
sonable value of his own services. 

INVESTED One of the most difficult problems 
CAPITAL. in connection with the Excess 
Profits Tax law is to determine 
whether a business comes within the Nominal Capi¬ 
tal or Invested Capital class. 

The method of determining the tax and the 
amount of the tax differs materially in the two 
cases, hence the importance of a correct classifica¬ 
tion. 

Nominal capital business includes: 

Physicians, lawyers, teachers and other profes¬ 
sional people, as well as brokers and commission 
merchants who render personal services exclusively 
and do not buy, sell or deal in merchandise or other 
property on their own account. Such business is 


122 


FEDERAL EXCESS PROFITS TAX. 


classified as nominal capital because no investment 
of money or property is required or employed and 
because the earnings are principally derived from 
personal services. 

Invested capital business includes manufacturing 
and mercantile business where merchandise or other 
property is bought and sold and where the busi¬ 
ness requires and employs a substantial investment 
in money or property. 

Invested capital, generally speaking, consists of 
capital, surplus and undivided profits at the begin¬ 
ning of the tax year. As the Returns, however, 
are based on the average invested capital for the 
year, the above figure must be adjusted to cover 
any increase or decrease in capital assets occurring 
during the year. Balance sheets as of the begin¬ 
ning and end of the year will be required. 

Corporations Invested capital of a partnership 
and Partnerships, or corporation includes: 

(a) Actual cash paid in. 

(b) Actual cash value of tangible property paid 
in (not exceeding par value). If paid in prior to 
January 1, 1914, the cash value as of that date con¬ 
trols. 

(c) Paid in or earned surplus. 

(d) Cash value of good will, patents, trade¬ 
marks, etc. 

Individuals. Invested Capital in the case of an in¬ 
dividual includes: 

(a) Actual cash or cash value of property paid 
into the business determined as above. 


ALPHABETICAL SUMMARY. 


123 


Securities. The law states that invested capital 
does not include stocks, bonds (other 
than obligations of the United States), or other as¬ 
sets the income from which is not subject to the 
Excess Profits Tax, nor money or other property 
borrowed. From the above it would appear that 
Invested Capital includes United States bonds and 
taxable bonds of industrial corporations but does 
not include State or Municipal bonds or the stock 
of industrial corporations. 

How To Invested capital may be increased by 
Increase, capitalizing indebtedness, by the sale of 
treasury or new stock, or in any man¬ 
ner where new money comes in or the net worth 
of the business is increased other than from profits 
of the tax year. 

NET INCOME. Net income for the current tax 
year for the purposes of the Ex¬ 
cess Profits Tax is the same as net income under 
present and former Federal Returns, except: 

(a) Individuals and partnerships who have in¬ 
vested capital and partnerships who have nominal 
capital are permitted to include in their business 
expense a reasonable amount for salaries paid or 
credited to the partners or owners of the business 
on account of services actually rendered. This does 
not, however, apply to a partnership after March 1, 
1918, except where an agreement as to salaries is 
placed on the books before that date. 

(b) Individuals, partnerships and corporations in 
figuring net income may exclude dividends received 


124 


FEDERAL EXCESS PROFITS TAX. 


from taxable corporations for the year 1913 and 
for the year 1917 and thereafter. 

(c) Pre-war net income in the case of a business 
established since 1913 is disregarded and a flat rate 
of 8 per cent, is taken except where the new busi¬ 
ness is successor to an old business, in which case 
the pre-war net income of the old business gov¬ 
erns. 

(d) If pre-war net income was less than 7 per 
cent or more than 9 per cent, these percentages re¬ 
spectively are taken as a minimum and maximum. 

(e) Where pre-war net income was low as com¬ 
pared with similar lines of business the Treasury 
Department is authorized to allow a percentage of 
deduction up to 9 per cent, to correspond with the 
normal net income of such similar lines of business 
having similar invested capital. 

NEW BUSINESS. See “Deductions.” 

NOMINAL In the case of a profession, trade or 
CAPITAL, business having no capital or only 
nominal capital, the Excess Profits 
Tax is based on a flat rate of 8 per cent, on net tax¬ 
able income in excess of $6,000 for an individual or 
partnership and of $3,000 for a corporation. The 
partnership exemption is irrespective of the num¬ 
ber of partners. See also “Invested Capital.” 

Salary or Every individual receiving a salary 
Commission, or commission for services rendered 
is considered as within the nominal 
capital classification and is taxed at 8 per cent, on 


ALPHABETICAL SUMMARY. 


125 


the excess of such salary or commission over $6,000. 
This salary tax is in addition to all other forms of 
tax. 

OLD BUSINESS 

TAKEN OVER. See “Deductions.” 

PARTNERSHIPS. Taxable partnerships are re¬ 
quired to make Returns when 
their net taxable income is $6,000 or more. Part¬ 
nerships with invested capital and partnerships 
with nominal capital are permitted to deduct rea¬ 
sonable salaries paid the partners as a business ex¬ 
pense in determining net income under the Excess 
Profits Tax law. This is not true, however, under 
the Federal or Massachusetts Income Tax Laws. 
The salaries cannot be in excess of the value of ac¬ 
tual services rendered. 

In order to obtain such salary deduction after 
March 1, 1918, an agreement prior to said date must 
be entered on the books. 

PRE-WAR The pre-war period is the years 1911, 
PERIOD. 1912 and 1913, or such of those years 
during the whole of which the tax¬ 
payer was engaged in business. For net income 
and deductions depending upon pre-war conditions 
see “Net Income” and “Deductions.” 

PROFESSIONS. Lawyers, doctors, teachers, 
brokers, trustees, architects, 
engineers, chemists, clergymen, actors, account¬ 
ants, authors, artists, musicians and other profes- 


126 FEDERAL EXCESS PROFITS TAX. 

sional men, both individuals and partners, who re¬ 
ceive fees, salaries, or commissions in excess of 
$6,000 are required to return such excess as a part 
of their Federal Income Tax Return, and are taxed 
at 8 per cent, on such excess. 

RETURNS. Excess Profits Tax Returns are re¬ 
quired March 1st, viz.— 

(a) Taxable individuals receiving salaries in ex¬ 
cess of $6,000. 

(b) Taxable individuals engaged in business or 
professions having a net taxable income of $6,000 
or more. 

(c) Taxable partnerships engaged in business or 
professions having a net taxable income of $6,000 
or more. 

(d) Taxable corporations engaged in business 
and having a net income of $3,000 or more. 

Corporations and partnerships entitled to use 
their own fiscal year should file their Returns with¬ 
in 60 days thereafter. 

SALARIES. Salaries over $6,000 are taxed at 8 
per cent, on the excess. Partner¬ 
ships and individuals which employ invested capi¬ 
tal and partnerships which have only nominal cap¬ 
ital may charge up to business expense a reasonable 
amount for salaries paid or credited to the partners, 
or owners of the business on account of services ac¬ 
tually rendered. Where such salaries exceed $6,000 
in any case they become subject to the 8 per cent, 
tax. Salary agreements signed by partners should 
be entered on the books prior to March 1, 1918, 


ALPHABETICAL SUMMARY. t27 

otherwise the salaries to partners will not be al¬ 
lowed as a deduction after that date. 

THE TAX. The Excess Profits Tax on salaries 
or on net taxable income from a busi¬ 
ness or profession employing nominal capital is 8 
per cent, on the excess above $6,000 in the case of 
an individual or partnership and 8 per cent, on the 
excess above $3,000 in the case of a corporation. 

For the summary of the tax in the case of “In¬ 
vested Capital” see titles “How the Tax is Fig¬ 
ured” and “Invested Capital.” See also the Treas¬ 
ury Department Regulations following: 


128 


FEDERAL EXCESS PROFITS TAX. 


TREASURY REGULATIONS. 

Definitions. 

Article 1. Definitions.—When used in these reg¬ 
ulations the terms defined in articles 2 to 9, inclu¬ 
sive, shall, unless otherwise indicated by the con¬ 
text, be deemed to be used only with the scope or 
meaning ascribed to them respectively in such ar¬ 
ticles. 

Art. 2. Corporation.—The term “corporation” 
includes joint-stock companies or associations, no 
matter how created or organized, insurance com¬ 
panies and limited partnerships. 

Art. 3. Domestic and Foreign.—The term “do¬ 
mestic” means created under the law (statutory or 
other) of the United States or any State thereof, 
Alaska, Hawaii, or the District of Columbia, and 
the term “foreign” means created under the law 
(statutory or other) of any other possession of the 
United States or of any foreign country or gov¬ 
ernment. 

Art. 4. United States.—The term “United 
States” (when used in a geographical sense) means 
only the States thereof, Alaska, Hawaii, and the 
District of Columbia. 

Art. 5. Taxable Year.—The term “taxable year” 
means the 12 months ending December 31 of each 
year, except in the case of a corporation or part¬ 
nership which has fixed its own fiscal year, in 
which case it means such fiscal year. The first 
taxable year is the year ending December 31, 1917, 
except that in the case of a corporation or partner¬ 
ship which has fixed its own fiscal year, the first 
taxable year is the fiscal year ending during the 
calendar year 1917. (For special provisions as to 
pro-rating the amount of tax due for the portion of 
any fiscal year ending during the calendar year 
1917, see articles 19 and 20.) 


TREASURY REGULATIONS. 


129 


Art. 6. Pre-War Period.—The term “pre-war 
period” means the calendar years 1911, 1912, and 
1913, or if a corporation or partnership was not in 
existence or an individual was not engaged in the 
trade or business during the whole of such three 
years, then as many of such years during the whole 
of which the corporation or partnership was in 
existence or the individual was engaged in the 
trade or business. 

Art. 7. “Trade,” “Business,” “Trade or Business” 
in Case of Corporations and Partnerships.—In the 
case of a corporation or partnership all income 
from whatever source derived is deemed to be re¬ 
ceived from its trade or business, and the terms 
“trade,” “business,” and “trade or business” in¬ 
clude all sources of income. 

Art. 8. “Trade” in the Case or Individuals.—In 

the case of an individual, the terms “trade,” “busi¬ 
ness,” and “trade or business” comprehend all his 
activities for gain, profit, or livelihood, entered into 
with sufficient frequency, or occupying such por¬ 
tion of his time or attention as to constitute a voca¬ 
tion, including occupations and professions. When 
such activities constitute a vocation they shall be 
construed to be a trade or business whether con¬ 
tinuously carried on during the taxable year or 
not, and all the income arising therefrom shall be 
included in his return for excess-profits tax. 

In the following cases the gain or income is not 
subject to excess-profits tax, and the capital from 
which such gain or income is derived shall not be 
included in “invested capital”: (a) Gains or profits 
from transactions entered into for profit, but which 
are isolated, incidental, or so infrequent as not to 
constitute an occupation, and (b) the income from 
property arising merely from its ownership, includ¬ 
ing interest, rent, and similar income from invest¬ 
ments except in those cases in which the manage- 


130 


FEDERAL EXCESS PROFITS TAX. 


ment of such investments really constitutes a trade 
or business. 

Art. 9. “Dividend.” —The term “dividend” has 
the same meaning as in section 31 of the act of Sep¬ 
tember 8, 1916, as amended by the act of October 
3, 1917. (See Income Tax Regulations, art. 106.) 

CORPORATIONS, PARTNERSHIPS AND IN¬ 
DIVIDUALS SUBJECT TO THE TAX. 

Art. 10. Corporations. —Every domestic corpora¬ 
tion which has for the taxable year a net income 
of $3,000 or more is, unless exempt under article 13, 
required to make a return and pay the tax, if any. 

Every foreign corporation which has for the tax¬ 
able year a net income of $3,000 or more from 
sources within the United States is, unless exempt 
under article 13, required to make a return and to 
pay the tax, if any. 

Art. 11. Partnership. —Every domestic partner¬ 
ship which has for the taxable year a net income 
of $6,000 or more is, unless exempt under article 
13, required to make a return and to pay the tax, 
if any. 

Every foreign partnership which has for the tax¬ 
able year a net income of $3,000 or more from 
sources within the United States is, unless exempt 
under article 13, required to make a return and to 
pay the tax, if any. 

Art. 12. Individuals. —Every citizen or resident 
of the United States who has for the taxable year 
an aggregate net income in excess of $6,000 from 
trades, businesses, occupations or professions is 
unless exempt under article 13, required to make a 
return and to pay the tax, if any. 

Every non-resident alien individual who has for 
the taxable year an aggregate net income of $3,000 
or more from trades, businesses, occupations, or 
professions carried on within the United States is, 


TREASURY REGULATIONS. 


131 


unless exempt under article 13, required to make a 
return and to pay the tax, if any. 

Art. 13. Exemptions.—The following are exempt 
from the tax: 

(a) Corporations exempt under the provisions of 
section 11 of Title I of the act of September 8, 1916, 
from the tax imposed by such title. (See Income 
Tax Regulations, arts. 67, ff.) 

(b) Partnerships carrying on or doing the same 
kind of business or coming within the same de¬ 
scription. 

(c) Individuals to the extent that they carry on 
or do the same kind of business or come within the 
same description. 


RATES AND COMPUTATION OF TAX. 

Art. 14. Classification of Net Income. —For the 

purposes of the excess profits tax net income which 
is subject to the tax shall be divided into two 
classes, as follows: 

A. Net income which is derived from a trade or 
business having no invested capital, or not more 
than a nominal capital, including in the case of an 
individual salaries, wages, fees, or other compensa¬ 
tions; and 

B. Net income which is derived from a trade 
or business having invested capital. 

In the case of a corporation or partnership, all 
the trades and businesses in which it is engaged 
will be treated as a single trade or business (as 
provided in sec. 201), and its entire income will 
be held to be of the same class as the income from 
its principal trade or business. 

In the case of an individual the net income sub¬ 
ject to the excess profits tax, shall be classified as 
provided in this article. Net income of Class A 
shall be taxed as provided in article 15, and net 


132 


FEDERAL EXCESS PROFITS TAX. 


income of Class B shall be taxed as provided in 
article 16. 

Art. 15. Rate of Tax on Income of Class A.— 

The tax upon net income of Class A as defined in 
article 14 shall be computed at the rate of 8 per cent, 
upon the amount thereof in excess of $3,000 in the 
case of a domestic corporation; upon the amount 
thereof in excess of $6,000 in the case of a domestic 
partnership or of a citizen or resident of the United 
States; and upon the whole thereof in the case of a 
foreign corporation or partnership or of a nonresi¬ 
dent alien individual. 

Art. 16. Rate of Tax on Income of Class B.— 

The tax upon net income of Class B as defined in 
article 14 shall, except as otherwise provided in ar¬ 
ticle 17, be computed at the following rates: 

20 per cent, of the amount of the net income in 
excess of the deduction (determined as provided in 
articles 21, 23 and 24) and not in excess of 15 per 
cent, of the invested capital for the taxable year. 

25 per cent, of the amount of the net income in 
excess of 15 per cent, and not in excess of 20 per 
cent, of such capital; 

35 per cent, of the amount of the net income in 
excess of 20 per cent, and not in excess of 25 per 
cent, of such capital; 

45 per cent, of the amount of the net income in 
excess of 25 per cent, and not in excess of 33 per 
cent, of such capital; 

60 per cent, of the amount of the net income in 
excess of 33 per cent, of such capital. 

Illustrations.—(1) A corporation has a capital of 
$100,000, pre-war earnings of 7 per cent., and a net 
income for the taxable year of $75,000. 

The deduction allowed will be 7 per cent, of the 
capital, or $7,000, plus $3,000 specific deduction, a 
total of $10,000. 

The amount of the net income taxable at each 
rate will be as follows: 


TREASURY REGULATIONS. 


133 


In excess of the deduction and not in ex¬ 
cess of 15 per cent, of the capital (rate, 

20 per cent.). $5,000 

In excess of 15 per cent, of the capital and 
not in excess of 20 per cent, thereof 

(rate, 25 per cent.). 5,000 

In excess of 20 per cent, of the capital and 
not in excess of 25 per cent, thereof 

(rate, 35 per cent.). 5,000 

In excess of 25 per cent, of the capital and 
not in excess of 33 per cent, thereof 

(rate, 45 per cent.). 8,000 

In excess of 33 per cent, of the capital 

(rate, 60 per cent.). 42,000 

The tax would then be computed as 
follows: 

20 per cent, of $5,000. $1,000 

25 per cent, of 5,000. 1,250 

35 per cent, of 5,000. 1,750 

45 per cent, of 8,000 . 3,600 

60 per cent, of 42,000. 25,200 

Total tax. $32,800 


(2) An individual or partnership has a capital of 
$100,000, pre-war earnings of 8 per cent., and a net 
income for the taxable year of $22,500. 

The deduction allowed will be 8 per cent, of the 
capital, of $8,000, plus $6,000 specific deduction, a 
total of $14,000. 

The amount of the net income taxable at each 
rate will be as follows: 

In excess of the deduction and not in ex¬ 


cess of 15 per cent, of the capital (rate, 

20 per cent.).. $1,000 

In excess of 15 per cent, of the capital and 
not in excess of 20 per cent, thereof 

(rate, 25 per cent.). 5,000 

In excess of 20 per cent, of the capital and 
not in excess of 25 per cent, thereof 
(rate, 35 per cent.). 2,500 
















134 


FEDERAL EXCESS PROFITS TAX. 


The tax would then be computed as 


follows: 

20 per cent, of $1,000. $200 

25 per cent, of 5,000. 1,250 

35 per cent, of 2,500. 875 

Total tax. $2,325 


Art. 17. When Deduction Exceeds 15 Per Cent, 
of Invested Capital.—In any case in which the de¬ 
duction determined as provided in articles 21, 23, 
and 24 is greater than 15 per cent, of the invested 
capital and therefore can not be fully allowed under 
the first rate or bracket of article 16, then any re¬ 
maining portion of the deduction will be allowed 
under the second bracket, and continued if neces¬ 
sary into the succeeding bracket or brackets until 
the entire amount of the deduction is allowed. 

Illustrations.—(1) A corporation has a capital of 
$9,000; pre-war earnings of 9 per cent.; and a net 
income for the taxable year of $10,000. 

The deduction allowed will be 9 per cent, of the 
capital, or $810, plus $3,000 specific deduction, a 
total of $3,810. 

The amount of the net income in each bracket 


will be as follows: 

15 per cent, of the capital. $1,350 

In excess of 15 per cent, of the capital and 
not in excess of 20 per cent, thereof.... 450 

In excess of 20 per cent, of the capital and 
not in excess of 25 per cent, thereof... . 450 

In excess of 25 per cent, of the capital and 
not in excess of 33 per cent, thereof... . 720 

In excess of 33 per cent, of the capital... . 7,030 


It is evident that the total deduction of $3,810 
is greater than 15 per cent, of the capital and so is 
not fully absorbed by the amount of net income not 
in excess of 15 per cent, of the capital. In such 
case, applying article 17, the total deduction of 
$3,810 will be distributed as follows: 







TREASURY REGULATIONS. 


135 


$1,350 in the first bracket, leaving nothing to be 
taxed at the 20 per cent. rate. 

$450 in the second bracket, leaving nothing to be 
taxed at the 25 per cent. rate. 

$450 in the third bracket, leaving nothing to be 
taxed at the 35 per cent. rate. 

$720 in the fourth bracket, leaving nothing to be 
taxed at the 45 per cent. rate. 

There still remains $840 of the deduction to be 
allowed in the fifth bracket against the $7,030 of 
income which would otherwise be taxable under 
that bracket. There would then be $6,190 of net 
income left to be taxed at the 60 per cent, rate under 
the fifth bracket. Hence, the total excess-profits 
tax in this case would be $3,714. 

(2) An individual or partnership has a capital of 
$40,000, pre-war earnings of 9 per cent., and a net 
income for the taxable year of $12,000. 

The deduction allowed will be 9 per cent, of the 
capital, or $3,600, plus $6,000 specific deduction, a 
total of $9,600. 

The amount of the net income in each bracket 


will be as follows: 

15 per cent, of the capital. $6,000 

In excess of 15 per cent, of the capital and 

not in excess of 20 per cent, thereof.... 2,000 

In excess of 20 per cent, of the capital and 
not in excess of 25 per cent, thereof... . 2,000 

In excess of 25 per cent, of the capital and 
not in excess of 33 per cent, thereof_ 2,000 


It is evident that the total deduction of $9,600 
is greater than 15 per cent, of the capital and so is 
not fully absorbed by the amount of net income not 
in excess of 15 per cent, of the capital. In such case, 
applying Article 17, the total deduction of $9,600 
will be distributed as follows: 

$6,000 in the first bracket, leaving nothing to be 
taxed at the 20 per cent. rate. 



136 


FEDERAL EXCESS PROFITS TAX. 


$2,000 in the second bracket, leaving nothing to 
be taxed at the 25 per cent. rate. 

$1,600, the balance of the deduction, to be al¬ 
lowed against the $2,000 in income in the third 
bracket. 

There would then be $400 of income left in the 
third bracket to be taxed at the 35 per cent, rate, 
and $2,000 in the fourth bracket to be taxed at the 
45 per cent. rate. Hence, the total excess-profits 
tax in this case would be $1,040. 

Art. 18. Constructive Capital for Application of 
Rates.—Where the deduction allowed to a taxpayer 
is determined under article 24, the invested capital 
for the purpose of applying the rates of taxation 
ui:der article 16 shall be deemed to be an amount 
which bears the same ratio to the net income of the 
trade or busines for the taxable year which the 
average invested capital for the corresponding cal¬ 
endar year of representative corporations, partner¬ 
ships, and individuals engaged in a like or similar 
trade or business bears to their average net income. 

The Commissioner of Internal Revenue in de- 
tei mining for any calendar year the ratio which 
the average invested capital of representative cor¬ 
porations, partnerships, and individuals engaged 
in any particular trade or business bears to their 
average net income, will include the invested capi¬ 
tal and net income of representative corporations 
and partnerships for fiscal years ending during such 
calendar year. 

For the purpose of applying this article in the 
case of a corporation or partnership which has fixed 
its own fiscal year, the ratio determined for the cal¬ 
endar year ending during such fiscal year shall be 
used. 

Art. 19. Computation of Tax of Fiscal Year, 
Part of which Falls Within Calendar Year 1916.— 
If a corporation or partnership prior to March 1, 
1918, makes a return for a fiscal year, part of which 


TREASURY REGULATIONS. 


137 


falls within the calendar year 1916, the tax for the 
first taxable year shall be that proportion of the 
tax computed upon the net income for such fiscal 
year which the number of months from January 1, 
1917, to the end of such fiscal year bears to the en¬ 
tire number of months in such fiscal year. 

Art. 20. Computation of Tax for Period of Less 
Than 12 Months.—If a corporation or partnership 
at any time, either because it has just designated a 
fiscal year as provided in sections 8 or 13 of the 
act of September 8, 1916 (see Income Tax Regula¬ 
tions, arts. 31 and 211), or for any other reason, 
makes a return for a period of less than 12 months, 
the deduction will be an amount which bears the 
same ratio to the deduction allowable for a full 
year as the number of months in such period bears 
to 12 months. 

COMPUTATION OF THE DEDUCTION. 

Art. 21. Trade or Business Having Invested 
Capital.—The deduction used in computing the 
rates of tax under article 16 shall, except in cases 
coming within the conditions specified in articles 
23 and 24, be as follows: 

(a) In the case of a domestic corporation the sum 
of (1) an amount equal to the same percentage of 
the invested capital for the taxable year which the 
average amount of the annual net income of the 
trade or business during the pre-war period was of 
the invested capital for the pre-war period (except 
that 7 per cent, shall be used if such percentage was 
less than 7 per cent., and 9 per cent, shall be used 
if such percentage was more than 9 per cent., and 8 
per cent, shall be used if the corporation was not in 
existence during the whole of at least one calendar 
year during the pre-war period), and (2) $3,000. 

(b) In the case of a domestic partnership or of a 
citizen or resident of the United States the sum of 


138 


FEDERAL EXCESS PROFITS TAX. 


(1) an amount equal to the same percentage of the 
invested capital for the taxable year which the aver¬ 
age amount of the annual net income of the trade 
or business during the pre-war period was of the 
invested capital for the pre-war period (except that 
7 per cent, shall be used if such percentage was less 
than 7 per cent., and 9 per cent, shall be used if 
such percentage was more than 9 per cent., and 8 
per cent, shall be used if the partnership was not 
in existence or the individual was not engaged in 
the trade or business during the whole of at least 
one calendar year during the pre-war period), and 

(2) $6,000. 

(c) In the case of a foreign corporation or part¬ 
nership or of a non-resident alien individual, an 

amount equal to the same percentage of the in¬ 
vested capital for the taxable year which the aver¬ 
age amount of the annual net income of the trade 
or business during the pre-war period was of the 
invested capital for the pre-war period (except that 
7 per cent, shall be used if such percentage was less 
than 7 per cent, and 9 per cent shall be used if such 
percentage was more than 9 per cent.; and 8 per 
cent, shall be used if the corporation or partnership 
was not in existence or the individual was not en¬ 
gaged in the trade or business during the whole of 
at least one calendar year during the pre-war 
period). 

Art. 22. Trade or Business Reorganized on or 
After January 2, 1913.—If a trade or business car¬ 
ried on by a corporation, partnership or individual 
was formerly organized or reorganized on or after 
January 2, 1913, but is substantially a continuation 
of a trade or business carried on prior to that date, 
then the corporation or partnership shall be deemed 
to have been in existence, or the individual shall be 
deemed to have been engaged in the trade or busi¬ 
ness, prior to that date, and for the purpose of com¬ 
puting the deduction the net income and invested 



TREASURY REGULATIONS. 


139 


capital of the predecessor shall be deemed to have 
been the net income and invested capital of the 
present owner for the pre-war period. 

Art. 23. When Net Income for Pre-War Period 
Cannot Be Satisfactorily Determined, or When Net 
Income Was Low During Pre-War Period, or 
When There Was No Net Income During Pre-War 
Period.—In the following cases the deduction shall 
be determined as provided in this article: 

(a) If the Secretary of the Treasury is unable 
satisfactorily to determine the average amount of 
annual net income of the trade or business for the 
pre-war period; 

(b) If the Secretary of the Treasury upon com¬ 
plaint finds that during the pre-war period the per¬ 
centage of the net income to the invested capital 
of the taxpayer was lower by 1 per cent, or more 
than the percentage of the net income to the in¬ 
vested capital of representative corporations, part¬ 
nerships or individuals engaged in a like or similar 
trade or business during the same period; or 

(c) If, in the case only of a domestic corporation 
or partnership which was in existence during the 
pre-war period, or of a citizen or resident of the 
United States who was engaged in the trade or 
business during the pre-war period, the Secretary 
of the Treasury upon complaint finds that during 
the pre-war period there was no net income from 
the trade or business. 

In such cases the deduction shall be— 

(1) An amount equal to the same percentage of 
the invested capital for the taxable year which the 
average deduction (determined in the same manner 
as provided in article 21, without including the 
$3,000 or $6,000 therein referred to) for such year 
of representative corporations, partnerships, or indi¬ 
viduals engaged in a like or similar trade or busi¬ 
ness, is of their average invested capital for such 
year, plus 


140 


FEDERAL EXCESS PROFITS TAX. 


(2) In the case of a domestic corporation, $3,000, 
and in the case of a domestic partnership or citizen 
or resident of the United States, $6,000. 

In cases arising under subdivision (a) or (c) of 
this article the tax shall be assessed in the first in¬ 
stance upon the basis of a deduction computed by 
the use of 7 per cent. In cases arising under sub¬ 
division (b) the tax shall be assessed in the first 
instance upon the basis of a deduction determined 
as provided in Article 21. 

In any case under this article a taxpayer claiming 
the benefit of this provision shall at the time of mak¬ 
ing the return file a claim for abatement (Form 47) 
of the amount by which the tax so assessed exceeds 
a tax computed upon the basis of the deduction de¬ 
termined as provided in this article. In cases com¬ 
ing within the provisions of this article payment of 
that portion of the tax covered by the claim for 
abatement will not be required until the claim is 
decided. If, however, in the judgment of the Com¬ 
missioner of Internal Revenue the interests of the 
United States would be jeopardized thereby, the 
right is reserved to require the claimant to give a 
bond of such amount and with such sureties as the 
commissioner thinks wise to safeguard such inter¬ 
ests. The bond shall be conditioned for the pay¬ 
ment of any tax found to be due with interest there¬ 
on, and if a bond satisfactory to the commissioner 
is not given within such time as he prescribes, the 
full amount of the tax assessed will become imme¬ 
diately due and the amount overpaid, if any, will 
upon final decision of the application, be refunded 
as a tax erroneously or illegally collected. 

Art. 24. When Invested Capital Can Not Be 
Satisfactorily Determined.—If the Secretary of the 
Treasury is unable satisfactorily to determine the 
invested capital, the deduction shall be the sum of— 

(1) An amount equal to the same proportion of 
the net income of the trade or business for the tax- 


TREASURY REGULATIONS. 


141 


able year as the average deduction (determined in 
the same manner as provided in article 21 without 
including the $3,000 or $6,000 therein referred to) 
for the corresponding calendar year, of representa¬ 
tive corporations, partnerships, and individuals en¬ 
gaged in a like or similar trade or business, is of 
their average net income, plus 

(2) In the case of a domestic corporation $3,000, 
and in the case of a domestic partnership or a cit¬ 
izen or resident of the United States, $6,000. 

The Commissioner of Internal Revenue in deter¬ 
mining for any calendar year the proportion which 
the average deduction of representative corpora¬ 
tions, partnerships, and individuals engaged in any 
particular trade or business is of their average net 
income, will include the deductions and net income 
of representative corporations and partnerships for 
fiscal years ending during such calendar year. 

For the purpose of applying this article in the 
case of a corporation or partnership which has fixed 
its own fiscal year, the proportion determined for 
the calendar year ending during such fiscal year 
shall be used. 

In every case of a trade or business having in¬ 
vested capital a return shall be made in the first 
instance in accordance with Article 21 or 23, but 
the taxpayer may submit therewith a statement of 
reasons why in his opinion the tax should be as¬ 
sessed in accordance with this article. 

Net Income—General Provisions. 

Art. 25. Exemptions.—The following classes of 
income are exempt from the tax: 

(a) Income exempt from taxation under section 
4 of the act of September 8, 1916, as amended. (See 
Income Tax Regulations, art. 5.) 

(b) Income derived from the business of life, 
health, and accident insurance combined in one 
policy issued on a weekly premium payment plan. 


142 FEDERAL EXCESS PROFITS TAX. 

(c) Compensation or fees received by officers 
and employees under the United States or any 
State, Territory, or the District of Columbia for 
their services as such. 

Art. 26. Net Income of Foreign Corporations, 
Partnerships, and Non-Resident Alien Individuals. 
—In the case of a foreign corporation or partner¬ 
ship or a non-resident alien individual the net in¬ 
come shall be the net income from sources within 
the United States. 

Art. 27. Dividends Received from a Foreign Cor¬ 
poration Which Is Subject to Federal Income Tax. 

—In the case of income derived by a corporation or 
partnership from dividends upon the stock of a for¬ 
eign corporation,' part of whose net income is sub¬ 
ject to the income tax, there shall be deducted only 
that proportion of the dividends received upon such 
stock which the net income of such foreign cor¬ 
poration from sources within the United States is 
of its entire net income. 

Where dividends upon the stock of a foreign cor¬ 
poration are received by an individual, as a part of 
his income from trade or business, there shall be 
included in the net income that proportion of the 
dividends received upon such stock which the net 
income of such corporation from sources outside the 
United States is of its entire net income. 

Net Income—Corporations. 

Art. 28. Taxable Year.—The net income of a 
corporation for the taxable year shall be determined 
by adding (1) the amount of net income ascertained 
and returned for income tax purposes for such tax¬ 
able year as provided in Title I of the act of Sep¬ 
tember 8, 1916, as amended and (2) the amount, if 
any, received as interest on bonds or other obliga¬ 
tions of the United States, issued after September 
24, 1917 (other than the interest received on an 
amount of such bonds or obligations the aggregate 


TREASURY REGULATIONS. 


143 


principal of which does not exceed $5,000), and de¬ 
ducting from the total so obtained the amounts 
received during the taxable year as dividends upon 
the stock or from the net earnings of other cor¬ 
porations, joint-stock companies or associations, or 
insurance companies, subject to the income tax im¬ 
posed by Title I of such act of September 8, 1916, 
as amended, except as otherwise provided in article 
27. 

Art. 29. Pre-War Period.—The net income of a 
corporation for the pre-war period shall be com¬ 
puted as follows: 

(b) For the calendar year 1912 by adding (1) the 
amount of net income shown in item 9 of the return 
made under section 38 of the act of August 5, 1909, 
for the calendar year 1911, and (2) the amount of 
taxes paid to the United States within the calendar 
year 1911 under section 38 of such act; 

(b) For the calendar year 1912 by adding (1) the 
amount of net income shown in item 9 of the return 
made under section 38 of the act of August 5, 1909, 
for the calendar year 1912, and (2) the amount of 
taxes paid to the United States within the calendar 
year 1912 under section 38 of such act; and 

(c) For the calendar year 1913 by adding (1) the 
amount of the entire net income shown in item 8 
of the return made under Section II of the act of 
October 3, 1913, for the calendar year 1913, and (2) 
the amount of taxes paid within the calendar year 
1913 under section 38 of the act of August 5, 1909, 
and Section II or IV of the act of October 3, 1913, 
and deducting from the total so obtained the 
amounts received during the calendar year 1913 as 
dividends upon the stock or from the net earnings 
of other corporations, joint stock companies or asso¬ 
ciations, or insurance companies, subject to the in¬ 
come tax imposed by Section II of the acts of Octo¬ 
ber 3, 1913. 


144 


FEDERAL EXCESS PROFITS TAX. 


Net Income—Partnerships. 

Art. 30. Taxable Year.—The net income of a 
partnership for the taxable year shall be determined 
by adding the amount of its entire net income (or 
in the case of a foreign partnership, its entire net 
income from sources within the United States) as¬ 
certained upon the same basis and in the same man¬ 
ner as provided with respect to individuals for in¬ 
come-tax purposes by Title I of the act of Septem¬ 
ber 8, 1916, as amended (see Income Tax Regula¬ 
tions, art. 30), including the amounts, if any, re¬ 
ceived during the year as interest on bonds or other 
obligations of the United States issued after Sep¬ 
tember 24, 1917 (other than the interest on an 
amount of such bonds or obligations, the aggregate 
principal of which does not exceed $5,000), and de¬ 
ducting therefrom— 

(1) The amounts received during the taxable 
year as dividends upon the stock or from the net 
earnings of corporations, joint-stock companies or 
associations, or insurance companies, subject to the 
income tax imposed by Title I of the act of Sep¬ 
tember 8, 1916, as amended, except as otherwise 
provided in article 27; and 

(2) The deductions, if any, for salaries or interest 
allowed by articles 32 and 33, if such deductions 
have not already been made. 

Art. 31. Pre-War Period.—The net income of a 
partnership for each of the calendar years 1911, 
1912, and 1913 shall be determined in the same man¬ 
ner as the net income for the taxable year, except 
that dividends upon the stock or from the net earn¬ 
ings of corporations, joint stock companies or asso¬ 
ciations, or insurance companies, subject to the tax 
imposed by section 38 of the act of August 5, 1909, 
or by Section II of the act of October 3, 1913, shall 
be deducted. (See art 30.) 

Art. 32. Deductions Allowed for Salaries Paid 


TREASURY REGULATIONS. 


145 


to Partners.—In computing net income for purposes 
of the excess profits tax; a partnership will be al¬ 
lowed to deduct as an expense reasonable salaries 
or compensation paid to individual partners for per¬ 
sonal services actually rendered during the taxable 
year, if the payments are made in accordance with 
prior agreements and are properly recorded on the 
books of the partnership. In no case shall the sal¬ 
aries or compensation so deducted be in excess of 
the salaries or compensation customarily paid for 
similar services under like responsibilities by cor¬ 
porations engaged in like or similar trades or busi¬ 
nesses. 

With respect to any period prior to March 1, 1918, 
regardless of whether a previous agreement has 
been made as to salaries or compensation, a similar 
deduction will be allowed for services actually ren¬ 
dered. 

In the case of a foreign partnership the deduction 
shall be limited to those portions of salaries or com¬ 
pensation which are paid for services rendered with 
respect to trade or business carried on in the United 
States. 

A partner in his individual capacity is, however, 
subject to the excess profits tax, if any, at the 8 per 
cent, rate under article 15 with respect to any sal¬ 
ary or compensation from the partnership for per¬ 
sonal services (including any amounts allowed to 
the partnership as a deduction on his account for 
the period prior to March 1, 1918). 

Art. 33. Deductions Allowed for Interest on 
Bona Fide Loans by Partners.—In computing net 
income for purposes of the excess profits tax a 
partnership will be allowed to deduct amounts paid 
during the year to an individual partner as interest 
upon any bona fide loan, but no deduction for so- 
called interest upon capital will be allowed. 

Art. 34. If Deduction is Made Under Article 32 
or 33, Corresponding Deduction Must Also Be 


146 


FEDERAL EXCESS PROFITS TAX. 


Made for Pre-War Period.—If, in computing net 
income for purposes of the excess profits tax, a 
partnership makes a deduction as allowed by article 
32 for salaries paid to partners during the taxable 
year, it must also in computing net income for the 
pre-war period make a corresponding deduction; 
and if it makes such a deduction as allowed by ar¬ 
ticle 33 for interest paid to partners, it must also in 
computing net income for the pre-war period make 
a corresponding deduction for any such interest 
actually paid during that period. 

Net Income—Individuals. 

Art. 35. Determination of Net Income Where 
There Is No Invested Capital or only Nominal Cap¬ 
ital.—The net income which is derived from a trade 
or business having no invested capital or not more 
than a nominal capital, including salaries, wages, 
fees or other compensations (constituting net in¬ 
come of class A as defined in art. 14) shall be deter¬ 
mined for the taxable year by adding the total net 
income from all such sources (or in the case of a 
nonresident alien individual the total net income 
from all such sources within the United States) as 
reported for income tax purposes for the same year. 

Art. 36. Determination of Net Income for Tax¬ 
able Year when there Is Invested Capital.—The net 

income which is derived from a trade or business 
having invested capital (constituting net income 
of class B, as defined in art. 14) shall be determined 
for the taxable year by adding the total net income 
from such sources (or in the case of a nonresident 
alien individual the total net income from such 
sources within the United States) as reported for 
income tax purposes for the same year and deduct¬ 
ing therefrom the deduction, if any, for salary al¬ 
lowed by article 39, if such deduction has not al¬ 
ready been made. 


TREASURY REGULATIONS. 


147 


There shall be excluded the amounts received 
during the year upon the stock or from the net earn¬ 
ings of corporations, joint-stock companies or asso¬ 
ciations, or insurance companies, subject to the in¬ 
come tax imposed by Title I of the act of September 
8, 1916, as amended. 

In the case, however, of an individual dealing in 
securities or otherwise using securities in trade or 
business there shall be included (1) the amount, if 
any, received as interest on bonds or obligations of 
the United States, issued after September 24, 1917 
(other than the interest received on an amount of 
such bonds or obligations the aggregate principal 
of which does not exceed $5,000), and (2) such 
proportion of dividends received upon the stock of 
foreign corporations as is required to be included 
by article 27. 

Illustration:—An individual owns a farm repre¬ 
senting an invested capital of $25,000, a country 
store with an invested capital of $6,000, and a flour 
mill with an invested capital of $10,000. His net 
income from the farm is $4,000, from the store 
$3,000, and from the mill $3,000. Thus his total 
net income of class B is $10,000. His total invested 
capital is $41,000. Assuming that his deduction is 
at the rate of 8 per cent, his total deduction will be 
$3,280 plus $6,000, or $9,280, to be applied against 
his net income of $10,000 in computing the tax at 
the graduated rates under article 16. 

The same individual allows himself a salary of 
$1,000 for working the farm and $9C0 for running 
the store, draws a salary of $1,200 as president of 
the local bank, and receives $250 in compensation 
for personal services of various kinds, such as road 
work, helping neighbors in harvest, etc. He also 
receives $300 in dividends on an investment in cer¬ 
tain stocks of a domestic corporation, and $100 as 
supervisor’s fees. The last item—i. e., supervisor’s 
fees—is exempt under the law (Section 201, subdi- 


148 


FEDERAL EXCESS PROFITS TAX. 


vision (a) and the $300 in dividends is not taxable 
inasmuch as it is derived from a mere investment 
not connected with his trade or business. His net 
income of class A will therefore consist of his sal¬ 
aries and his compensations for personal services, a 
total of $3,350. Since he is entitled to a deduction 
of $6,000 as to this class of income he will have no 
tax to pay at the 8 per cent, rate under article 15. 

Art. 37. Deduction of Contributions for Relig¬ 
ious, Charitable, etc., Purposes.—Contributions or 
gifts for religious, charitable, etc., purposes allowed 
as a deduction for purposes of the income tax under 
paragraph “Ninth” of subdivision (a) of section 5 
of the act of September 8, 1916, as amended, may, 
subject to the limitations therein contained, be de¬ 
ducted in computing the net income of the trade or 
business for purposes of the excess profits tax only 
when it is shown to the satisfaction of the Commis¬ 
sioner of Internal Revenue that such contributions 
or gifts are made by the trade or business and not 
by the individual in his personal capacity. 

Art. 38. Determination of Net Income for the 
Pre-War Period Where There Is Invested Capital. 
—The net income which is derived from a trade or 
business having invested capital (constituting net 
income of class B as defined in article 14) shall be 
determined for each of the calendar years 1911, 
1912, and 1913 upon the same basis and in the same 
manner as provided in article 36. 

Art. 39. Deduction Allowed for Salary for Him¬ 
self.—An individual carrying on a trade or business 
having an invested capital may in computing the 
net income of the trade or business for purposes of 
the excess profits tax deduct a reasonable amount 
designated by him as salary or compensation for 
personal service actually rendered by him in the 
conduct of such trade or business. In no case shall 
the amount so designated be in excess of the sal¬ 
aries or compensation customarily paid for similar 


TREASURY REGULATIONS. 


149 


service under like responsibilities by corporations 
or partnerships engaged in like or similar trades or 
businesses. 

In the case of a nonresident alien individual, the 
amount deducted shall be limited to that portion 
of the salary or compensation which is for service 
rendered with respect to trade or business carried 
on in the United States. 

The amount so designated shall, however, be in¬ 
cluded in computing his net income of class A under 
Article 35; and the balance of the income from 
his trade or business shall be included in computing 
his net income of class B under acticle 36. 

Illustration.—An individual owns and runs a 
newspaper having an invested capital of $50,000. 
The net income from the newspaper, without mak¬ 
ing any allowance for the salary of the owner, is 
$20,000, and, as income of class B, is subject to the 
graduated rates prescribed in article 16. His deduc¬ 
tion, as provided for in subdivision (b) of article 21, 
would be $4,500 (9 per cent, of his capital) plus 
$6,000, a total of $10,500. If, however, he allows 
himself a salary of $3,000, the net income from the 
newspaper will be $17,000, and the deduction of 
$10,500 will be applied against that amount. 

His salary of $3,000 must be included in his re¬ 
turn as income of class A, which is subject to the 
8 per cent, rate under article 15. If it constitutes 
his only income of that class he will pay no tax 
thereon, inasmuch as it is less than the deduction 
of $6,000 to which he is entitled as to that class of 
income. But if, for example, he receives in addition 
a salary of $4,000 as president of the local bank, his 
total net income of class A will be $7,000, and he 
will be required to pay a tax of 8 per cent, on $1,000 
thereof, or $80. 

Art. 40. If Deduction Is Made Under Article 39 
Corresponding Deduction Must Also Be Made for 
Pre-War Period.—If, in computing net income for 


150 


FEDERAL EXCESS PROFITS TAX. 


purposes of the excess profits tax, an individual de¬ 
ducts a reasonable amount designated as salary or 
compensation for personal services rendered by 
himself, as allowed by article 39, he must also in 
computing net income for the pre-war period, make 
a corresponding deduction. 

Art. 41. Individual Member of Partnership.— 
Inasmuch as a partner in his individual capacity is 
not considered to be engaged in trade or business 
with respect to his share in the profits of the part¬ 
nership, he is not subject to excess profits tax ; 
thereon. Consequently, in computing his net in¬ 
come for purposes of the excess profits tax he need 
not include his share of the partnership profits. 

He shall, however, in computing his net income 
of class A under article 35, include any salary or 
compensation from the partnership for personal 
services (including any amount allowed to the part¬ 
nership as a deduction on his account for the period 
prior to March 1, 1918, in accordance with article 
32.) 


Invested Capital—General Provisions. 

Art. 42. Allowance for Depletion, Depreciation, 
and Obsolescence in Computation of Invested Cap¬ 
ital.—The term “invested capital” as used in the 
excess profits tax law means the invested capital of 
the present owner. The basis, or starting point, in 
the computation of invested capital is found in the 
amount of cash and other property paid in, the orig¬ 
inal values of such other property being determined 
in accordance with the rules laid down in these reg¬ 
ulations. But the computation does not stop with 
such original entries or amounts; it must take prop¬ 
erly into account the surplus and undivided profits. 
In the computation of surplus and undivided profits, 
however, full recognition must first be given to ex¬ 
penses incurred and losses sustained from the orig¬ 
inal organization of the business concern down to 


TREASURY REGULATIONS. 


151 


the taxable year, including among such expenses 
and losses a reasonable allowance for depletion, 
depreciation, or obsolescence of property originally 
acquired for cash or for stock or shares or in any 
other manner. If value appreciation of a kind not 
subject to income tax (other than that allowed un¬ 
der article 55) has been taken up in the accounts, 
a deduction must be made in respect of such appre¬ 
ciation so taken up. In the computation of the in¬ 
vested capital for any year full effect must also be 
given to any liquidation of the original capital. 

Art. 43. How to Ascertain Average Invested 
Capital for the Year, Averaged Monthly.—The in¬ 
vested capital for any pre-war or taxable year (or 
where the tax is computed upon the basis of a peri¬ 
od less than a year, for such period) is the average 
invested capital for the year or period averaged 
monthly, according to the following rules: 

(a) Add the capital for each of the several 
months during which no change occurs, and the 
average capital (ascertained as provided in subdi¬ 
vision (b) of this article) for each month in which 
a change occurs and divide the total by the number 
of months in the year or period. 

(b) To ascertain the capital for any month in 
which a change occurs multiply the capital as of the 
first day of the month by the number of days it 
remains constant and the capital after each change 
by the number of days (including the day on which 
the change occurs) during which it remains con¬ 
stant, add the products, and divide the sum by the 
number of days in the month. 

Art. 44. Items Not Allowed to be Included in 
Invested Capital.—The second paragraph of sec¬ 
tion 207 of the excess profits law specifies certain 
items which may not be included in invested capital, 
namely: 

(a) Stocks, bonds (other than obligations of the 
United States), or other assets, the income from 


152 


FEDERAL EXCESS PROFITS TAX. 


which is not subject to the excess profits tax; and 

(b) Money or other property borrowed. 

The term “money or other property borrowed” as 
used in section 207 and these regulations includes 
not only cash or other borrowed property which can 
be identified as such, but current liabilities and tem¬ 
porary indebtedness of all kinds, and any permanent 
indebtedness upon which the taxpayer is entitled to 
an interest deduction in computing net income. A 
corporation which under the income-tax law is al¬ 
lowed to deduct only a part of the entire interest 
paid upon its indebtedness, may include in its in¬ 
vested capital such a proportion of its permanent 
indebtedness as the amount of interest upon such 
indebtedness which the corporation is not allowed 
to deduct is of the total amount of interest paid 
upon such indebtedness during the taxable year. 

Art. 45. When Income from Tax-Free Securities 
Consists Partly of Trading Profits and Partly of 
Interest, Dividends, etc.—Whenever income con¬ 
sists partly of gains or profits subject to the excess 
profits tax arising from trading in stocks, bonds, 
etc., the dividends or interest on which are not sub¬ 
ject to such tax, and partly of such dividends or 
interest, then, subject to the limitations as to bor¬ 
rowed money, there shall be included in the in¬ 
vested capital an amount which bears the same ratio 
to the total amount invested in such stocks or bonds 
as the amount of such gains or profits bears to the 
total amount of such income. 

Art. 46. Treatment of Stock of Foreign Corpora¬ 
tions When Held by Domestic Corporations or 
Partnerships or by Citizens or Residents of the 
United States.—In the case of domestic corpora¬ 
tions or partnerships and of citizens or residents of 
the United States holding stock in a foreign cor¬ 
poration part of whose net income is subject to the 
income tax, there shall be included in invested cap¬ 
ital such proportion of the value of the stock in such 


TREASURY REGULATIONS. 


153 


foreign corporation as the net income of such for¬ 
eign corporation from sources outside the United 
States is of its entire net income. 

Art. 47. Construction of Terms “Tangible Prop¬ 
erty” and “Intangible Property.”—The term “other 
intangible property” as used in section 207 will be 
construed to mean property of a character similar 
to good will, trade-marks, and the other specific 
kinds of property enumerated in the same clause. 
With respect to property not clearly of such a char¬ 
acter, rulings will be issued as occasion may de¬ 
mand to indicate whether it shall be regarded as 
tangible or intangible. 

The following classes of property when paid in 
for stocks or shares in a corporation or partnership, 
will be regarded as tangible property so paid in: 

(a) Stocks. 

(b) Bonds. 

(c) Bills and accounts receivable. 

(d) Notes and other evidences of indebtedness. 

(e) Leaseholds. 

But when a corporation pays for intangible prop¬ 
erty by the issuance of its own stock or bonds, this 
will not be regarded as being a payment bona fide 
made in cash or tangible property within the mean¬ 
ing of section 207. 

Art. 48. Invested Capital of Foreign Corpora¬ 
tions or Partnerships or Non-Resident Alien Indi¬ 
viduals.—When used with reference to a foreign 
corporation or partnership or a non-resident alien 
individual, the term “invested capital” means that 
proportion of the entire invested capital as defined 
and limited by these regulations which the net in¬ 
come from sources within the United States is of 
the entire net income. 

Art. 49. Reorganization on or After January 2, 
1913.—A trade or business carried on by a corpora¬ 
tion, partnership, or individual, which has been for¬ 
mally organized or reorganized on or after January 


154 


FEDERAL EXCESS PROFITS TAX. 


2, 1913, but which is substantially a continuation of 
a trade or business carried on prior to that date, 
shall, for the purposes of the excess profits tax, be 
deemed to have been in existence prior to that date 
and the invested capital of its predecessor prior to 
that date shall be deemed to have been its invested 
capital. This article relates to the pre-war period 
and does not apply to the invested capital for the 
taxable year. 

Art. 50. Reorganization After March 3, 1917.— 

In case of the reorganization, consolidation, or 
change of ownership of a trade or business after 
March 3, 1917, if an interest or control in such trade 
or business of 50 per cent, or more remains in con¬ 
trol of the same persons, corporation, associations, 
partnerships, or any of them, then in ascertaining 
the invested capital of the trade or business no as¬ 
set transferred or received from the prior trade or 
business shall be allowed a greater value than 
would have been allowed under these regulations 
in computing the invested capital of such prior trade 
or business if such asset had not been so trans¬ 
ferred or received, unless such asset was paid for 
specifically as such, in cash or tangible property, 
and then not to exceed the actual cash or actual 
cash value of the tangible property paid therefor 
at the time of such payment. 

Art. 51. Invested Capital for Pre-War Period.— 
The invested capital for the pre-war period shall, 
in general, be determined in the same manner as 
for the taxable year, except that the valuation as 
of January 1, 1914, shall not apply to tangible prop¬ 
erty paid in for stock or shares. 

Art. 52. Scope of Section 210.—Section 210 pro¬ 
vides for exceptional cases in which the invested 
capital can not be satisfactorily determined. In 
such cases the taxpayer may submit to the Com¬ 
missioner of Internal Revenue evidence in support 
of a claim for assessment under the provisions of 


TREASURY REGULATIONS. 


155 


section 210. (See articles 18 and 24.) Such excep¬ 
tional cases may consist, among others, of the fol¬ 
lowing: 

(1) Where, through defective accounting or the 
lack of adequate data, it is impossible accurately to 
compute invested capital. 

(2) Where upon application by a foreign tax¬ 
payer the Secretary of the Treasury finds that the 
expense of securing the data necessary for the com¬ 
putation of the invested capital would be unrea¬ 
sonable in view of the amount of tax involved, or 
that it is impracticable to determine either the “en¬ 
tire invested capital” or the “entire net income.” 

(3) Long-established business concerns which by 
reason of ultra-conservative accounting or the form 
and manner of their organization would, through 
the operation of section 207, be placed at a serious 
disadvantage in competing with representative con¬ 
cerns in a like or similar trade or business. 

(4) Where the invested capital is seriously dis¬ 
proportionate to the taxable income. Such cases 
may arise through: 

(a) The realization in one year of income which 
represents the earnings of capital unproductively 
invested through a period of years or the fruits of 
activities antedating the taxable year; or, 

(b) Inability to recognize or properly allow for 
amortization, obsolescence, or exceptional deprecia¬ 
tion due to the present war, or to the necessity in 
connection with the present war of providing plant 
which will not be wanted for the purposes of the 
trade or business after the termination of the war. 

INVESTED CAPITAL—CORPORATIONS 
AND PARTNERSHIPS. 

Art. 53. Rule for Computing Invested Capital. 

—In computing invested capital, every corporation 
or partnership paying taxes at the graduated rates 
prescribed in Section 201 (see article 16), shall add 


156 


FEDERAL EXCESS PROFITS TAX. 


together its paid-in capital and its paid-in or earned 
surplus and undivided profits (under whatever 
name the same may be called) as shown by its 
books at the beginning of the taxable year. The 
total thus obtained shall be adjusted for any asset 
or item which it covers that is not carried on the 
books at the valuation prescribed by law or by these 
regulations. When necessary, adjustment (addi¬ 
tion or subtraction) shall be made in respect of the 
following: 


ADJUSTMENTS. 

1. Stock or shares issued in the purchase of in¬ 
tangible property prior to March 3, 1917, which 
cannot be included in an amount exceeding (a) 20 
per cent, of the par value of the total stock or shares 
outstanding on that date, (b) the actual value of 
such intangible property at the date acquired, or 
(c) the par value of the stock or shares issued in 
payment therefor, whichever is the lowest. (See 
articles 57 and 58.) 

2. Stock or shares issued for a mixed aggregate 
of tangible property, patents and copyrights, and 
good will or other intangible property. (See arti¬ 
cle 59.) 

3. Stock or shares issued for patents and copy¬ 
rights, valued at (a) their actual cash value at the 
time of payment, or (b) the par value of the stock 
or shares issued therefor, whichever is lower. (See 
article 56.) 

4. Stock or shares issued for tangible property 
prior to January 1, 1914, valued at (a) the actual 
cash value of such property on January 1, 1914, or 
(b) the par value of the stock, whichever is lower. 
(See article 55.) 

5. Stock originally issued for property and subse¬ 
quently returned to the corporation as a gift, etc. 
(See article 54.) 


TREASURY REGULATIONS. 


157 


6. Add any portion of its permanent indebtedness 
which may be included under article 44. 

7. Add value of tangible property paid in for 
stock or shares in excess of the par value of such 
shares, when authorized by article 63. 

8. Add amounts expended in the past for (a) the 
acquisition of tangible property or (b) specifically 
for good will and other similar intangible property, 
when authorized by article 64. 

9. For the valuation of assets acquired in reorgan¬ 
izations, etc., (a) effected after March 3, 1917, see 
article 50; (b) as to the pre-war period, see articles 
49 and 51. 

10. Deduct amounts representing appreciation 
excluded by article 42. 

11. Make any additional deductions required by 
reason of insufficient allowances in the accounts of 
the taxpayer for depletion, depreciation, and obso¬ 
lescence. (See article 42.) 

Whenever any corrections are made in respect 
of the capital stock and surplus, corresponding cor¬ 
rections must be made in the respective asset items 
in the balance sheet of the taxpayer. 

After making any adjustments required under 
paragraphs 1 to 11 above, the adjusted total of the 
capital and surplus account will represent the in¬ 
vested capital at the beginning of the taxable year, 
except that in any case where the admissible assets 
(and these include all assets when valued in accord¬ 
ance with these regulations, except stock, bonds— 
other than obligations of the United States—the 
income of which is not subject to excess-profits 
tax) are less than the amount of such adjusted total, 
then the invested capital must be further reduced 
to an amount equal to the sum of the admissible 
assets. Tax-free securities and stock in foreign 
corporations may be included as admissible assets 
to the extent authorized in articles 45 and 46. 

If there has been any change made during the tax- 


158 


FEDERAL EXCESS PROFITS TAX. 


able year in the amount of the invested capital, the 
monthly average shall be taken (See article 43), but 
in no case may the invested capital include any sur¬ 
plus or undivided profits earned during the tax¬ 
able year. 

With respect to the taxable year 1917, every such 
corporation and partnership will be required to sub¬ 
mit a balance sheet as at the first day of the taxable 
year and also a balance sheet as at the close of the 
taxable year. Thereafter every such corporation 
and partnership will be required to submit a bal¬ 
ance sheet as at the close of each taxable year. Bal¬ 
ance sheets should be made in accordance with the 
books of the taxpayer and changes in respect of 
any items therein made pursuant to these regula¬ 
tions should be explained in a separate statement 
attached to the balance sheet to which it relates. 

Art. 54. Stock Returned to Corporation.—For 
the purpose of computing invested capital, in cases 
where the stock of the corporation is issued or ex¬ 
changed for property (tangible or intangible), the 
following rule will apply: 

When any of such stock is returned to the cor¬ 
poration as a gift or for a consideration substan¬ 
tially less than its par value, the stock so returned 
shall not be treated as a part of the stock issued or 
exchange for such property. The proceeds derived 
in cash or its equivalent from the resale of the stock 
so returned shall, however, be included in the in¬ 
vested capital if retained and employed in the busi¬ 
ness. 

Art. 55. Valuation of Tangible Property Paid in 
for Stock or Shares.—Tangible property paid in for 
stock or shares prior to January 1, 1914, must be 
valued at either (a) the actual cash value of such 
property on January 1, 1914, or (b) the par value 
of the stock or shares specifically issued therefor, 
whichever is lower. This is one of the few cases 
in which the law permits allowance to be made for 


TREASURY REGULATIONS. 


159 


appreciation, and here no appreciation can be recog¬ 
nized unless the original stock or shares were spe¬ 
cifically issued in exchange for such tangible prop¬ 
erty. 

Tangible property paid in for stock or shares on 
or after January 1, 1914, will be taken at the actual 
cash value of such property at the time of payment, 
irrespective of the par value of the stock or shares. 

Art. 56 Patents and Copyrights.—Patents and 
copyrights paid in for stock or shares must be val¬ 
ued at either (a) the actual cash value at the time 
of payment or (b) the par value of the stock or 
shares issued therefor, whichever is lower. 

Art. 57. Valuation of Intangible Property.—If 

good will, trade-marks, trade-brands, franchises of 
a corporation or partnership, or other intangible 
property has been purchased with stock or shares 
issued prior to March 3, 1917, the amount that may 
be included in invested capital must not exceed (a) 
20 per cent, of the par value of the total stock or 
shares outstanding on that date, nor (b) the actual 
value of the asset at the date acquired, nor (c) the 
par value of the stock issued in payment for the 
asset. 

Art. 58. Application of 20 Per Cent. Limitation 
Upon Intangible Property.—The 20 per cent, limita¬ 
tion upon intangible property purchased prior to 
March 3, 1917, for or with stock or shares of the 
corporation or partnership, applies not to each item 
or class of intangible property separately, but to 
the aggregate amount of all such property so pur¬ 
chased. Such intangible property may be included 
in the invested capital only up to an amount not 
exceeding 20 per cent, of the total stock or shares 
of the corporation or partnership on March 3, 1917, 
even though the aggregate amount of such intan¬ 
gible property be greater in value than such 20 per 
cent, of the par value of the total stock or shares. 


160 


FEDERAL EXCESS PROFITS TAX. 


Intangible property bona fide purchased prior to 
March 3, 1917, with stock having no par value may 
be included in invested capital at a value not ex¬ 
ceeding the actual cash value of such intangible 
property at the time of the purchase and in an 
amount not exceeding 20 per cent, of the total 
shares of stock outstanding on March 3, 1917, meas¬ 
ured by their value as at the date or dates of issue. 

Art. 59. Rules to Govern Cases Where Shares 
or Securities are Issued for Mixed Aggregate of 
Tangible and Intangible Property.—Where stock or 
shares (or stock or shares and bonds or other ob¬ 
ligations) have, prior to March 3, 1917, been issued 
for a mixed aggregate of— 

(a) Tangible property, 

(b) Patents and copyrights, and, 

(c) Good will or other intangible property, 
the following rules will govern: 

(1) In the absence of satisfactory evidence to the 
contrary, it will be presumed in the case of a cor¬ 
poration, that its stock was issued for the following 
purposes in the order named: 

(a) Good will or other intangible property, 

(b) Patents and copyrights, and 

(c) Tangible property. 

, (2) Upon the production by the taxpayer of evi¬ 

dence satisfactory to the Commissioner of Internal 
Revenue as to the actual values at the date of acqui¬ 
sition of (a) the tangible property and (b) the pat¬ 
ents and copyrights, the sum of these two items 
may be applied against the total par value of the 
securities issued and the remainder will then be 
deemed to represent the par value of the securities 
issued for the good will or other intangible prop¬ 
erty. 

(3) Cases where mixed aggregates of tangible 
and intangible property have been paid in for stock 
and bonds shall, if the Secretary of the Treasury 
is unable to determine satisfactorily the respective 


TREASURY REGULATIONS. 


161 


values of the several classes of property at the time 
of payment be treated as coming under articles 18 
and 24 and the tax shall be assessed accordingly. 

Art. 60. Valuation of Intangible Assets Pur¬ 
chased.—Good will and other similar intangible as¬ 
sets purchased with cash or tangible property must 
be taken at a value not in excess of the cash or 
actual cash value of the tangible property specific¬ 
ally paid therefor. 

Art. 61. Surplus or Undivided Profits Earned 
During Any Year Excluded in Computing Invested 
Capital for Such Year.—Profits earned during any 
taxable year or pre-war year shall not be included in 
the computation of the invested capital for such 
year, even though set up as “surplus” upon the 
books or distributed in the form of stock dividends. 

Art. 62. Scope of Phrase “Surplus and Undivided 
Profits.”—Clause (3) of subdivision (a) of section 
207 authorizes the inclusion in invested capital of 
earned surplus and undivided profits used or em¬ 
ployed in the business. Inasmuch as section 201 
provides that all the income of a corporation or 
partnership shall be deemed to be received from its 
trade or business, all the surplus and undivided 
profits of a corporation or partnership (exclusive of 
undivided profits earned during the year), from 
whatever source derived, will, unless invested in 
stocks, bonds (other than obligations of the United 
States), or other assets, the income from which is 
not subject to the excess profits tax, be deemed to 
be used or employed in the business and may be in¬ 
cluded in the invested capital. 

Art. 63. When Tangible Property May be In¬ 
cluded in Surplus.—Where it can be shown by evi¬ 
dence satisfactory to the Commissioner of Internal 
Revenue that tangible property has been conveyed 
to a corporation or partnership by gift or at a value, 
accurately ascertainable or definitely known as at 


162 


FEDERAL EXCESS PROFITS TAX. 


the date of conveyance, clearly and substantially in 
excess of the cash or the par value of the stock or 
shares paid therefor, then the amount of the excess 
shall be deemed to be paid in surplus. The adopted 
value shall not cover mineral deposits or other 
properties discovered or developed after the date 
of conveyance, but shall be confined to the value 
accurately ascertainable or definitely known at that 
time. 

Evidence tending to support a claim for a paid- 
in surplus under these circumstances must be as of 
the date of conveyance, and may consist, among 
other things, of (1) an appraisal of the property by 
disinterested authorities, (2) the assessed value in 
the case of real estate, and (3) the market price in 
excess of the par value of the stock or shares. 

Art. 64. Reconstruction of Surplus and Undi¬ 
vided Profits Accounts.—Where through failure to 
provide for depletion, depreciation, obsolescence, or 
other expenses or losses, or where for any other 
cause or reason the books of accounts of the tax¬ 
payer do not show the true paid-in or earned sur¬ 
plus and undivided profits, in the computation of 
invested capital such adjustments shall be made as 
are necessary to arrive at a statement of the cor¬ 
rect amount. 

Where a taxpayer claims additions to the capital 
account, the books of account will be presumed to 
show the true facts and the burden of proof will 
rest upon the taxpayer. Such additions will be ac¬ 
cepted only to the extent and under the conditions 
stated below: 

(1) Amounts which have been expended in the 
past for the acquisition of plant, equipment, tools, 
patterns, furniture, fixtures, or like tangible prop¬ 
erty, having a useful life extending substantially 
beyond the year in which the expenditure was 
made, and which have been charged as current 
expense, may (less proper reduction for deprecia- 


TREASURY REGULATIONS. 


163 


tion or obsolesence) be added to the surplus account 
in computing invested capital when such assets are 
still owned and in active use by the taxpayer dur¬ 
ing the taxable year. Special tools, patterns, and 
similar assets shall not be assigned any value if 
their cost has been recovered through having been 
included in the price of goods. If their cost has 
not been so recovered and they are held for only oc¬ 
casional use, they shall not be assigned a value in 
excess of the fair value based upon the earnings 
actually arising from their current use. Assets of 
this kind not in current use shall not be valued at 
more than their nominal or scrap value. 

(2) Amounts expended in the past for good will, 
trade-marks, trade-brands, franchises, and other in¬ 
tangible assets of a like character, are controlled 
by the language of the statute which provides that 
such assets “shall be included in invested capital if 
the corporation or partnership made payment bona 
fide therefor specifically as such in cash, or tangible 
property.” The Commissioner of Internal Revenue 
will recognize additions to invested capital on ac¬ 
count of intangible assets only if such assets have 
been explicitly paid for in the manner prescribed by 
the statute. Where expenditures have been made for 
the general development of intangible assets, and 
charged as current expense, no readjustment there¬ 
of will be allowed. 

(3) Amounts under (1) and (2) above, expended 
on or after March 1, 1913, will, in the case of a cor¬ 
poration, be limited strictly to items which have not 
been deducted in computing taxable income upon 
its income tax return. Whenever a corporation has 
claimed and the department has allowed a deduc¬ 
tion in respect to its income tax, the item upon 
which the deduction is based shall not be restored 
to the surplus account nor included in the invested 
capital. 

(4) The taxpayer shall in his return to the Com- 


164 FEDERAL EXCESS PROFITS TAX. 

missioner of Internal Revenue make a statement of 
the proposed additions, specifying the kinds and 
amounts of property involved, the years in which 
the expenditures were made, and the method fol¬ 
lowed in distinguishing between capital outlays and 
current expenses. 

(5) The taxpayer shall also show that adequate 
provision has been made for the depletion, depre¬ 
ciation, or obsolescence of such of the assets so ac¬ 
quired as are, under the rulings of the department, 
subject to recognized depreciation. 

Art. 65. Invested Capital of Insurance Compan¬ 
ies.—(a) The invested capital of a mutual insurance 
company will be deemed to consist of the sum of 

(1) any surplus or contingent reserves maintained 
for the general use of the business, plus (2) any 
legal reserves the net additions to which are in¬ 
cluded in the net income subject to the tax—sub¬ 
ject to the restrictive provisions of article 44 re¬ 
quiring the exclusion of tax-free assets other than 
obligations of the United States. 

(b) The invested capital of a stock insurance 
company will be deemed to consist of its capital 
stock, paid in or earned surplus and undivided 
profits, (subject to the same restrictive provision 
of art. 44), computed in accordance with the provis¬ 
ions of article 53. 


INVESTED CAPITAL—INDIVIDUALS. 

Art. 66. Items Included in Invested Capital.— 

Subject to the limitations stated in these regula¬ 
tions, the invested capital of an individual is meas¬ 
ured by the total of three items: 

(1) Actual cash paid into the trade or business. 

(2) Tangible property paid into the trade or busi¬ 
ness. 

(3) Patents and copyrights, and good will, trade- 


TREASURY REGULATIONS. 


165 


marks, trade-brands, franchises, and other intangi¬ 
ble property. (See art. 68.) 

Art. 67. Valuation of Tangible Property. —Sub¬ 
ject to the requirements of article 42 as to allow¬ 
ance for depletion, depreciation and obsolescence, 
valuation of tangible property will be as follows: 

In the case of tangible property purchased with 
cash the valuation will be based upon the cost (esti¬ 
mated if not known) in cash at the time purchased. 

In the case of tangible property paid in as such 
prior to January 1, 1914, the valuation will be based 
upon its actual cash value as of that date. Ade¬ 
quate evidence of such value must be furnished by 
the taxpayer. 

In the case of tangible property paid in on or 
after January 1, 1914, the valuation will be based 
upon its actual cash value at the time of payment. 

It will be presumed that the tangible assets em¬ 
ployed in the trade or business have been acquired 
with cash which has been either paid in directly 
or derived from earnings of the trade or business; 
but the taxpayer will be entitled to show that such 
assets were paid in as tangible property. 

Art. 68. Valuation of Intangible Property.— 

Patents and copyrights, and good will, trade-marks, 
trade-brands, franchises, and other similar intangi¬ 
ble assets may be included in invested capital at a 
value not to exceed the actual cash paid therefor 
or the actual cash value at the time of payment of 
the tangible property paid therefor, but only if 
bona fide payment was made therefor specifically 
as such in cash or tangible property. 

Art. 69. Profits Earned During Taxable Year 
May Be Included. —The restriction in respect of un¬ 
divided profits earned during the taxable year 
which is imposed upon corporations and partner¬ 
ships does not apply to individuals, and therefore, 
unless otherwise shown, the profits of the taxable 


166 


FEDERAL EXCESS PROFITS TAX. 


year remaining in the trade or business will be 
deemed to have arisen ratably throughout the year, 
and the capital at the beginning of the year may 
be increased by the total amount of such profits re¬ 
maining in the trade or business averaged monthly 
over the year. 

Art. 70. Rule for Computing Invested Capital. 

—Where an individual keeps books of account his 
invested capital will be found in his capital account 
(under whatever name it may be called) after mak¬ 
ing therein any adjustments or corrections required 
by these regulations, provided that the assets other 
than those not allowed to be included equal or ex¬ 
ceed the amount of such capital account. Other¬ 
wise the invested capital shall be the amount of 
such assets. 

Where an individual does not keep books of ac¬ 
count he should prepare and preserve a statement 
as at the beginning of the taxable year and as at the 
end of the taxable year, showing in full all his assets 
valued in accordance with these regulations, and all 
his liabilities. The excess of such assets over such 
liabilities at the beginning of the year and again 
at the end of the year will constitute the invested 
capital of the individual on those dates, respectively, 
provided, that in each case the assets other than 
those not allowed to be included equal or exceed 
the amount of such excess. Otherwise the invested 
capital shall be the amount of such assets. The 
amount of the difference between the capital thus 
shown as at the beginning of the year and at the 
end of the year will, in the absence of evidence to 
the contrary, be deemed to have arisen ratably 
throughout the year, and the capital at the begin¬ 
ning of the year will be increased or decreased, as 
the case may be, by such amount averaged monthly 
over the year. 

If an individual is engaged in more than one 
trade or business having invested capital, then his 


TREASURY REGULATIONS. 


167 


invested capital for the purposes of computing the 
deduction and applying the rates of taxation will be 
determined by taking the total invested capital of 
all such trades or businesses. 

The terms “assets” and “liabilities” as used in 
this article relate only to the assets or liabilities of 
the trade or business. 


NOMINAL CAPITAL. 

Art. 71. Application of Section 209.—Section 209 
(see art. 15) applies primarily to occupations, pro¬ 
fessions, trades, and businesses engaged principal¬ 
ly in rendering personal service in which the em¬ 
ployment of capital is not necessary and the earn¬ 
ings of which are to be ascribed primarily to the 
activities of the owners. 

In determining whether a trade or business is 
taxable under article 15 no weight will be given to 
the fact that it is carried on by means of personal 
service unless the principal owners are regularly 
engaged in the active conduct of the trade or busi¬ 
ness. 

Art. 72. Application of Section 209 Not to be 
Affected by Mere Size of Capital, Form of Organi¬ 
zation, etc.—Business concerns which render pro¬ 
fessional or personal service and are of the class 
normally taxable under article 15 shall not be taken 
out of that class merely because of the size of the 
capital if the employment of such capital is necessi¬ 
tated by delay and irregularity in the receipt of fees, 
etc., or if such capital is wholly or mainly used as a 
fund from which to advance salaries, wages, etc., 
or to provide office furniture, accommodations, 
and equipment, nor because of the form of organi¬ 
zation, whether corporation or partnership, nor in 
the case of a partnership because of the number of 
partners. 


168 


FEDERAL EXCESS PROFITS TAX. 


Art. 73. Agents and Brokers.—Agents and brok¬ 
ers requiring and using no capital or merely a nom¬ 
inal capital in their business are taxable under arti¬ 
cle 15, but commission houses regularly employing 
a substantial amount of capital, whether to lend to 
principals or to carry goods on their own account, 
are not deemed to be agents or brokers and are tax¬ 
able under the provisions of article 16. 

Art. 74. Meaning of “Nominal Capital”; Busi¬ 
nesses Which Will Not Be Deemed to Have Nom¬ 
inal Capital.—-The term “nominal capital” as used 
in section 209 means in general a small or negligible 
capital whose use in a particular trade or business 
is incidental. The following will not be construed 
as businesses having a nominal capital for purposes 
of excess profits tax: 

(a) A business which because of conditions aris¬ 
ing from the war or exceptional opportunities for 
profits earns a disproportionately high rate of profit 
during the taxable year, if it belongs to a class 
which necessarily and customarily requires capital 
for its operation. In the determination of doubtful 
cases stress will be laid upon the normal relation 
of net income to capital during pre-war years; 

(b) Corporations which, although their capitali¬ 
zation is nominal, employ a substantial amount of 
capital in their business; 

(c) A business having a substantial capital, but 
whose invested capital within the meaning of sec¬ 
tion 207 is reduced to a nominal amount by the 
operation of the restrictive clauses of that section, 
e. g., where the capital, consisting originally of a 
small amount of cash paid in, has since appreciated 
in value, or where the capital is largely covered by 
indebtedness or consists principally of tax-free se¬ 
curities or of intangible assets built up or developed 
by expenditures which have been regularly de¬ 
ducted as items of current expense. 


TREASURY REGULATIONS. 


169 


RETURNS. 

Art. 75. When a Return of Information as to the 
Invested Capital and Net Income for the Pre-War 
Period Will Not be Required.—For the purposes 
of the excess profits tax, a return of information 
with respect to the invested capital and net income 
for the pre-war period will not be required of a cor¬ 
poration, partnership, or individual in the follow¬ 
ing cases: 

(1) If the taxpayer accepts the minimum per¬ 
centage, viz, 7 per cent., as the percentage to be 
used in computing the deduction under article 21; or 

(2) If the trade or business is taxable only at the 
8 per cent, rate under article 15. 

This article must not be construed as not requir¬ 
ing a return of information as to all facts which 
may be necessary for the ascertainment of the cap¬ 
ital and income for the taxable year whenever such 
a return is required by the Commissioner of Inter¬ 
nal Revenue. 

Art. 76. A Married Woman May Make Separate 
Return.—A married woman who is a sole trader or 
is entitled to any taxable income to her sole and 
separate use may, for purposes of the excess-profits 
tax, make a separate return in the same manner 
as any other individual. 

Art. 77. When Affiliated Corporations Must 
Furnish Information as to Intercorporate Relations. 

—For the purpose of the excess-profits tax every 
corporation will describe in its return all its inter¬ 
corporate relationships with other corporations 
with which it is affiliated, and will furnish such in¬ 
formation in relation thereto as will enable the 
Commissioner of Internal Revenue to compute the 
amount of the tax properly due from each corpor¬ 
ation on the basis of an equitable and lawful ac¬ 
counting. 


170 


FEDERAL EXCESS PROFITS TAX. 


For the purpose of this regulation two or more 
corporations will be deemed to be affiliated (1) 
when one such corporation owns directly or con¬ 
trols through closely affiliated interests or by a 
nominee or nominees, all or substantially all of the 
stock of the other or others, or when substantially 
all of the stock of two or more corporations is 
owned by the same individual or partnership, and 
both or all of such corporations are engaged in the 
same or a closely related business; or (2) when one 
such corporation (a) buys from or sells to another 
products or services at prices above or below the 
current market, thus affecting an artificial distri¬ 
bution of profits, or (b) in any way so arranges 
its financial relationships with another corporation 
as to assign to it a disproportionate share of net 
income or invested capital. 

Art 78. When Affiliated Corporations May Be 
Required to Make Consolidated Return.—Whenever 
necessary to more equitably determine the invested 
capital or taxable income, the Commissioner of 
Internal Revenue may require corporations classed 
as affiliated under article 77 to furnish a consoli¬ 
dated return of net income and invested capital. 
Where such consolidated return is required it may 
be made by any one or more of such corporations 
or by all of them acting jointly; but if such affiliated 
corporations, when requested to file such consoli¬ 
dated return, neglect or refuse to do so, the Com¬ 
missioner of Internal Revenue may cause an exam¬ 
ination of the books of all such corporations to be 
made and a consolidated statement to be made from 
such examination. In cases where consolidated re¬ 
turns are accepted, the total tax will be computed 
in the first instance as a unit upon the basis of the 
consolidated return and will be assessed upon the 
respective affiliated corporations in such propor¬ 
tions as may be agreed among them. If no such 
agreement is made the tax will be assessed upon 


TREASURY REGULATIONS. 


171 


each such corporation in accordance with the net 
income and invested capital properly assignable 
to it. 


ASSESSMENT AND COLLECTION. 

Art. 79. Assessment and Collection Governed 
by Income Tax Regulations.—All excess-profits 
taxes to which any taxpayer is subject shall be as¬ 
sessed and collected at the same times and in the 
same manner as provided with respect to income 
taxes in the income tax regulations in so far as the 
same are applicable. 


172 


FEDERAL CAPITAL STOCK TAX. 


(4) FEDERAL CAPITAL STOCK TAX. 

BRIEF On Sept. 8, 1916, the Congress en- 
HISTORY. acted the Capital Stock Tax affecting 
business corporations whose capital stock has a 
value of $75,000 or over. 

WHO ARE SUBJECT TO THE TAX. 

BUSINESS The Capital Stock Tax ap- 

CORPORATIONS. plies only to business corpor¬ 
ations. It does not apply to 
corporations which are exempt under the Federal 
Income Tax or to so-called Massachusetts Trusts. 
Business corporations having a capital stock of an 
actual value of $75,000 or more must file a Return. 
Where the value exceeds $99,000 there is a tax. 

A corporation is taxed only if in business during 
the Government fiscal year, July 1 to June 30, and 
also during the preceding year, hence a corporation 
organized after July 1, 1917 need not make a return 
for 1917-1918. 

The tax being upon the privilege of doing busi¬ 
ness during the coming year a corporation ceasing 
business on or before June 30, 1918, is not subject 
to the tax for 1918-1919. 

Corporations doing no business during the tax 
year or the preceding year are exempt and need 
make no return. Examples of inactive corpora¬ 
tions are corporations in the hands of a receiver 
or in process of dissolution, corporations where 
business has entirely ceased and probably holding 


FEDERAL CAPITAL STOCK TAX. 


173 


companies and corporations which merely hold title 
to property subject to long term leases. 


HOW THE TAX IS FIGURED. 

OVER $99,000. Business corporations subject to 
the tax are taxed annually at the 
rate of fifty cents for each one thousand dollars of 
capital stock value in excess of $99,000. 

The capital stock value is determined from public 
or private sales, from average net income for the 
preceding five years, or from earning capacity. 

The following percentages based on earning ca¬ 
pacity will give a taxable value of $100 per share. 

Mercantile, manufacturing and industrial cor¬ 


porations . 10% 

Banks west of the Mississippi River. 8% 

Banks east of the Mississippi River. 6% 

Public Utilities . 8% 

Oil Companies . 15% 


TAX RETURNS REQUIRED. 

WHEN FILED. Capital stock tax returns must 
be filed with the Collector dur¬ 
ing the month of July in each year and must state 
the outstanding capital stock, surplus, undivided 
profits, sales of stock, net taxable income, average 
profits and dividends for the preceding five years, 
and the estimated fair value per share. 







174 


FEDERAL ESTATE TAX. 


(5) FEDERAL ESTATE TAX. 

BRIEF On September 8, 1916, the Congress 
HISTORY, passed the Federal Estate Tax Law. 

On March 3, 1917, and again on Oc¬ 
tober 3, 1917, the law was amended and the rates in¬ 
creased. 

WHO ARE SUBJECT TO THE TAX. 

TRANSFER OF The Federal Estate Tax Law 
NET ESTATES, affects the following:—(a) Es¬ 
tates of residents of the United 
States deceased on or after September 8, 1916, 
where such estates exceed $60,000 gross or $50,000 
net. 

(b) Estates of non-residents of the United States 
deceased on or after September 8, 1916, to the ex¬ 
tent that such estates include property in the 
United States. 

The tax is a tax upon transfers of net estates in¬ 
cluding transfers made in contemplation of or to 
take effect upon death except where such transfers 
were for adequate consideration. 


HOW THE TAX IS FIGURED. 

GROSS ESTATE. Gross estate includes the value 
of all property at time of death 
including income earned or accrued at time of death, 
or in the case of a non-resident, of all such property 
situated in the United States. 


FEDERAL ESTATE TAX. 


175 


NET ESTATE. Net estate consists of the re¬ 
mainder after deducting from the 
gross estate, funeral expenses, charges of adminis¬ 
tration, claims against the estate including unpaid 
mortgages, losses incurred by the estate during 
administration from fire or other casualty not com¬ 
pensated by insurance, expenditures for the Support 
of dependents during administration, other charges 
against the estate allowed by the law of the State 
for administration, and a fiat exemption of $50,000. 


TAX RATES. The law provides different rates 
depending upon the date of death. 


THE TAX RATE. 


Amount of Net Estate 
After Deducting $50,000 

Net estate not exceeding 
Net estate $ 50,000 — 
Net estate 150,000 — 
Net estate 250,000 — 
Net estate 450,000 — 
Net estate 1,000,000 — 
Net estate 2,000,000 — 
Net estate 3,000,000 — 
Net estate 4,000,000 — 
Net estate 5,000,000 — 
Net estate 8,000,000 — 
Net estate exceeding 


Sept. 8, Mar. 3, 

1916, to 1917, to 

Mar. 2, Oct. 3, 

1917, 1917, 

Inclusive Inclusive 


$ 50,000 @ 

150,000 @ 
250,000 @ 
450,000 @ 
1,000,000 @ 
2,000,000 @ 
3,000,000 @ 
4,000,000 @ 
5,000,000 @ 
8,000,000 @ 
10,000,000 @ 
10,000,000 @ 


1% 14% 

2% 3 % 

3% 44% 

4% 6 % 

5% 74% 

6% 9 % 

7% 104% 

8 % 12 % 
9% 134% 

10% 15 % 

10% 15 % 

10% 15 % 


On and 
After 
Oct. 4, 
1917 
2 % 
4% 
6 % 
8 % 
10 % 
12 % 
14% 
16% 
18% 
20 % 
22 % 
25% 


SOLDIERS Net estates of soldiers and sail- 

AND SAILORS, ors deceased while in the serv¬ 
ice of the United States during 
the present war or within one year thereafter where 
death is the result of injury or disease contracted 


176 


FEDERAL ESTATE TAX. 


in the service are taxed at the rate applicable to a 
decedent dying between March 3rd and October 3, 


1917. 


TAX RETURNS REQUIRED. 

THE RETURN. The tax is based upon a return 
to be made by the executor or 
administrator within one year after the death of 
the decedent. 

THE NOTICE. The executor or administrator is 
required within thirty days of his 
appointment or within thirty days after coming into 
possession of any property of the decedent, which¬ 
ever event first occurs, to file with the Collector of 
the District in which the decedent was a resident, 
a notice stating his appointment, the approximate 
value of the gross and net estate, and the names 
of persons who have received gifts or advancements 
in contemplation of death to take effect at the death 
of the decedent. 

PERSONS OTHER The following persons 
THAN EXECUTORS, other than an executor or 
administrator must also 
file returns within thirty days after coming into pos¬ 
session of property of the decedent: 

(a) Any person coming into the possession of 
property of the decedent before an administrator or 
executor is appointed. 

(b) Fiduciaries holding property of a decedent 


FEDERAL ESTATE TAX. 


177 


for whom no executor or administrator has been 
appointed. 

(c) The first taker of any real estate which 
passes directly to a beneficiary and not through an 
executor or administrator. 

(d) Any trustee or donee of any gift of material 
value from the decedent made within two years 
prior to his death or made in contemplation of or 
to take effect upon his death. 

(e) Any fiduciary holding property for the bene¬ 
fit of the decedent. 

(f) Any person holding property of the decedent 
which may not come into the possession of the 
executor or administrator. 

RETURN AND NOTICE Returns and notices 
WHEN NOT REQUIRED. are not required 

when the gross es¬ 
tate of a resident decedent does not exceed $60,000 
and the net estate does not exceed $50,000. 

STATE INHERI- State Inheritance Taxes can- 
TANCE TAXES, not be deducted from gross es¬ 
tate for purposes of determin¬ 
ing net estate and the rate of the tax. 

PAYMENT. The tax is payable one year after 
the death of the decedent or may be 
prepaid upon filing a tentative return in which case 
a discount rate of 5 per cent, will be allowed. 

If the tax is not paid within ninety days after 
it is due interest at the rate of 10 per cent, from the 
due date will be added. 


178 


FEDERAL STAMP TAXES. 


(6) FEDERAL STAMP TAXES. 

The Federal Stamp Tax Law effective Decem¬ 
ber 1, 1917, covers the following items: 

SCHEDULE. 

(a) Bonds, debentures and certificates of indebted¬ 

ness when issued or renewed, on each $100 of 

face value or fraction thereof. .05 

(b) Bonds, other than the above, including surety, 

indemnity and penal bonds, but excepting 
bonds required by State law and court 
bonds, on each $1 of premium. .01 

(c) Capital stock, original issue, on each $100. .05 

transfers, including “Rights” on 
each $100 . .02 

(d) Checks and drafts payable otherwise than at 

sight or on demand, on each $100. .02 

(e) Conveyances of real estate, on each $500 of 

actual consideration . .50 

(f) Custom House Entry, not exceeding $100 value. .25 

$100 to $500 value. .50 

exceeding $500 value_ 1.00 

(g) Custom House Withdrawal. .50 

(h) Passage tickets for ports outside the United 

States, Canada or Mexico.1.00-5.00 

(i) Parcel post for each 25c. .01 

(j) Playing cards, additional tax. .05 

(k) Power of Attorney. .25 

(l) Promissory notes, on each $100. .02 

(m) Proxy . .10 

(n) Sales on Boards of Trade, for each $100 value. .02 

(7) FEDERAL MISCELLANEOUS WAR 
TAXES. 

The Federal Miscellaneous War Taxes in effect 
November 1, 1917, are as follows: 

ADMISSIONS. Theatre tickets and admissions 
with certain exceptions are 

taxed 10 per cent. The patron pays the tax. 
















FEDERAL MISCELLANEOUS WAR TAXES. 179 

BOATS. Over 5 net tons, 50 feet over all or under 
50 cents per foot, 100 feet over all or 
under $1.00 per foot, over 100 feet $2.00 per foot. 
Motor boats not over 5 net tons, with fixed en¬ 
gines, $5. 

DUES. Club dues including initiation fees, if in 
excess of $12 per year are taxed 10 per 

cent. 

INSURANCE. Life insurance companies pay 8 
cents on each $100 or fractional 
part thereof of the amount of each policy issued. 

Industrial life insurance companies pay 40 per 
cent, of the first weekly premium on each life policy 
issued on the weekly premium plan, but not exceed¬ 
ing $500. 

Fire, casualty and liability insurance companies 
pay 1 cent on each one dollar or fraction thereof 
of premium charged for each policy, including re¬ 
newals. 

JOBBERS. Jobbers pay a so-called “floor tax” 
on certain merchandise, see list. The 
tax is at one-half the manufacturer’s rate. 

MANUFACTURERS. Manufacturers are re¬ 
quired to make monthly 
returns and pay taxes on certain merchandise based 
on selling price. The customer really pays the tax 
as it is added to the selling price in many cases. 

(a) Automobiles, 3 per cent. 

(b) Cameras, 3 per cent. 

(c) Chewing gum, 2 per cent. 


180 FEDERAL MISCELLANEOUS WAR TAXES. 

(d) Jewelry, 3 per cent. 

(e) Moving picture films, one-fourth of 1 cent 
per lineal foot. 

(f) Positive moving picture films sold or leased, 
one-fourth of 1 cent per lineal foot. 

(g) Perfumes and toilet articles, 2 per cent. 

(h) Pills and medicinal preparations, 2 per cent. 

(i) Piano-players, phonographs and records, 3 
per cent. 

(j) Sporting goods, games (except playing cards) 
and toys, 3 per cent. 

POSTAL RATES. The postal rate for first-class 
mail is increased from 2 cents 
to 3 cents except in the case of drop letters. 

The postal rate for postal cards is increased from 
1 cent to 2 cents. 

PUBLIC UTILITIES, (a) Express parcels, 1 
cent for each 20 cents 

charged. 

(b) Freight charges, 3 per cent. 

(c) Parlor car seats and berths, 10 per cent. 

(d) Passenger tickets, 8 per cent., except on com¬ 
mutation or season tickets under thirty miles, or 
where the fare does not exceed 35 cents. 

(e) Telegraph and telephone messages, 5 cents 
on each charge of 15 cents or more. 

The public pay the tax. 

MISCELLANEOUS. For tax on beverages, brok¬ 
ers, circuses, coffee, muni¬ 
tions, playing cards, sugar, theatres and tobacco, 
reference is made to the law itself. 


MASSACHUSETTS INCOME TAX 


181 


IV. 

THE DIFFERENT MASSACHUSETTS TAXES. 


(1) MASSACHUSETTS INCOME TAX. 

BRIEF On May 19, 1915, the Massachusetts 
HISTORY. Legislature adopted an amendment 
to the State Constitution, striking out 
the word “proportional” in relation to taxation, thus 
paving the way for a Constitutional Income Tax. 

This amendment was subsequently submitted to 
the people and ratified. 

On May 26, 1916, the State Legislature enacted 
the present Income Tax Law levying a tax on the 
inhabitants of the Commonwealth of iy 2 per cent, 
on net taxable incomes from business, trades, pro¬ 
fessions and annuities; 6 per cent, on net taxable in¬ 
come from intangible property, such as stocks, 
bonds and other securities; and 3 per cent, on net 
profits derived from sales or other dealings in in¬ 
tangible property. 

WHO ARE SUBJECT TO THE TAX. 

INDIVIDUALS. Every individual inhabitant of 
Massachusetts, every taxable 
partnership, association, unincorporated club, so¬ 
cial or fraternal organization, or trust, and every 
executor, administrator, trustee, guardian, con- 



182 


MASSACHUSETTS INCOME TAX. 


servator, trustee in bankruptcy appointed in Massa¬ 
chusetts, assignee for the benefit of creditors, and 
receivers for foreign corporations are subject to the 
income tax and required to make returns thereunder 
if they received during the calendar year taxable in¬ 
come from any of the following sources:—(mini¬ 
mum $5.) 

(a) Gross income exceeding $2,000 from any 
source whatever, taxable or non-taxable. 

(b) Income from an annuity or from a foreign 
fiduciary. 

(c) Interest to any amount from bonds of cor¬ 
porations, domestic or foreign, excepting only 
bonds of the United States and such State and mu¬ 
nicipal bonds as are stamped “tax exempt.” 

(d) Interest to any amount from deposits in na¬ 
tional banks, from money loaned, from notes, or 
other debts receivable, except mortgage notes se¬ 
cured by Massachusetts real estate. 

(e) Interest to any amount from deposits exceed¬ 
ing $1,000 in any savings bank or savings depart¬ 
ment of a trust company, excepting only a deposit 
in the Massachusetts Hospital Life Insurance Co. 

(f) Dividends to any amount from foreign cor¬ 
porations except national banks (meaning by for¬ 
eign corporations those organized outside of Mass¬ 
achusetts), and except dividends of the American 
Tel. & Tel. Co., the New England Tel. & Tel. Co., 
and the Western Union Telegraph Co. 

(g) Dividends to any amount from real estate 
trusts and other associations and trusts having 
transferable shares except from those which have 


MASSACHUSETTS INCOME TAX. 


183 


filed their agreement with the tax commissioner 
to pay their own tax. 

(h) Net profits to any amount arising from the 
purchase and sale of stocks, bonds and other in¬ 
tangible property. 

PARTNERSHIPS. Partnerships having a usual 
place of business in Massa¬ 
chusetts and (one or more) partners who are in¬ 
habitants of Massachusetts are required to make 
partnership returns if the partnership during the 
calendar year has received income from any of the 
sources which require a return in the case of an 
individual. If a partner has no taxable income ex¬ 
cept from the partnership, no individual return is 
required. The tax is based upon the Massachusetts 
partners interest and not upon the business done 
in Massachusetts. 

Partnerships making returns upon an accrual 
basis may deduct accrued Federal income and ex¬ 
cess-profits taxes. 

CORPORATIONS. Corporations are not taxed 
under the Massachusetts In¬ 
come Tax Law and are not required to file returns 
except in the following cases : 

(a) A corporation acting as trustee or in any 
other fiduciary capacity should file a fiduciary re¬ 
turn. 

(b) A church or incorporated religious organiza¬ 
tion should file Form 3M. 

(c) A corporation is required to file a list of em- 


184 


MASSACHUSETTS INCOME TAX. 


ployees who are paid in excess of $1,800 and a list 
of Massachusetts residents to whom interest pay¬ 
ments are made during the calendar year. 


HOW THE TAX IS FIGURED. 

SIX PER CENT. The following income is tax¬ 
able at 6 per cent.: (a) Divi¬ 
dends on shares of foreign (i. e. not Massachusetts) 
corporations except shares in national banks and of 
the American Tel. & Tel. Co., New England Tel. & 
Tel. Co., and Western Union Telegraph Co. 

(b) Dividends on shares of partnerships, asso¬ 
ciations and trusts having transferable shares ex¬ 
cept where such partnerships, associations and 
trusts have filed with the tax commissioner an 
agreement to pay the tax. 

(c) Interest on bonds and notes of all corpora¬ 
tions, domestic and foreign, except United States 
bonds and such Massachusetts, State, county and 
municipal bonds as are marked “tax exempt” and 
except mortgage notes secured by Massachusetts 
real estate, taxed as much or more than the amount 
of the loan and all prior liens. 

(d) Interest on loans and debts receivable. 

(e) Interest on deposits in national banks and 
trust companies except deposits not exceeding 
$1,000 in savings departments of trust companies, 
and except deposits in the Massachusetts Hospital 
Life Insurance Company. 

(f) Income from a foreign fiduciary. 


MASSACHUSETTS INCOME TAX. 


185 


ONE AND ONE- The following income is 
HALF PER CENT, taxable at 11/2 per cent.: 

(a) Income from annuities. 

(b) Excess over $2,000 of wages, salary or other 
compensation except salaries paid by the United 
States Government. 

(c) Excess over $2,000 of net taxable income 
from a trade or business. 

THREE The following income is taxable at 
PER CENT. 3 per cent.: 

(a) The excess of gains over losses 
received from purchases and sales of stocks, bonds 
and other intangible property, whether taxable or 
non-taxable. 

INCOME TO The following income must be 
BE RETURNED, included in the return: 

(a) Directors’ fees when paid 

as compensation. 

(b) Dividends from foreign corporations except 
national banks and except dividends of the Amer¬ 
ican Tel. & Tel. Co., the New England Tel. & Tel. 
Co., and the Western Union Telegraph Co. 

(c) Dividends from real estate trusts and other 
associations and trusts having transferable shares 
except from those having filed their agreement with 
the tax commissioner to pay their own tax. 

(d) Income from a business or profession. 

(e) Income from an annuity or from a foreign 
fiduciary. 

(f) Income from salaries, wages, or commissions 
whether in cash, stock or securities. 


186 


MASSACHUSETTS INCOME TAX. 


(g) Interest from bonds of corporations, domes¬ 
tic or foreign, excepting only bonds of the United 
States, and such Massachusetts, State and munici¬ 
pal bonds as are stamped “tax exempt/’ 

(h) Interest from deposits in national banks, 
from money loaned, from notes, or other debts re¬ 
ceivable, except mortgage notes secured by Massa¬ 
chusetts real estate. 

(i) Interest from deposits exceeding $1,000 in 
any savings bank or savings department of a trust 
company, excepting only a deposit in the Massa¬ 
chusetts Hospital Life Insurance Co. 

(j) Net profits to any amount arising from the 
purchase and sale of stocks, bonds and other in¬ 
tangible property. 

(k) Rights sold. 

INCOME NOT TO The following income need 
BE RETURNED. not be included in the re¬ 
turn : 

(a) Dividends on shares of Massachusetts cor¬ 
porations and national banks. 

(b) Dividends on shares of American Tel. & Tel. 
Co., New England Tel. & Tel. Co., and Western 
Union Tel. Co. 

(c) Dividends on transferable shares of partner¬ 
ships, associations and trusts which file an agree¬ 
ment with the tax commissioner to pay their own 
tax. 

(d) Dividends on life insurance polices. 

(e) Fire loss indemnity. 

(f) Gifts and legacies received. 


MASSACHUSETTS INCOME TAX. 


187 


(g) Income from real estate, except in the case 
of real estate operators. 

(h) Income from shares in co-operative banks. 

(i) Interest on deposits of not over $1,000 in 
Massachusetts savings banks or deposits of not over 
$1,000 in the savings departments of trust com¬ 
panies. 

(j) Interest on deposits in Massachusetts Hos¬ 
pital Life Insurance Co. 

(k) Interest from United States and Massachu¬ 
setts, State, county and municipal bonds marked 
“tax exempt.” 

(l) Interest on mortgage loans secured by Mass¬ 
achusetts real estate which is taxed on as much or 
more than the amount of the loan and all prior 
liens. 

(m) Proceeds of life, endowment or accident in¬ 
surance policies. 

(n) Return premiums on life insurance. 

(o) Rights unsold. 

(p) Salaries received from the United States 
Government must be returned but may also be in¬ 
cluded in the deductions. 

(q) United States pensions and pensions paid to 
teachers and State employees. 


DEDUCTIONS From gross taxable income 
ALLOWED. which must be returned certain 
deductions are allowed, viz.— 
(a) Bad debts arising during the year in connec¬ 
tion with a business and found worthless and 
charged off on the books during the same year. 


188 


MASSACHUSETTS INCOME TAX. 


(b) Depreciation on tangible property to a rea¬ 
sonable amount. 

(c) Expenses of doing business but not includ¬ 
ing personal or living expenses or salaries drawn 
by the taxpayer from his own business. 

(d) Income from salaries and wages and income 
from a business or profession up to $2,000. Also 
salaries received from the United States. 

Interest paid in connection with a business. 

(e) Life insurance premiums paid by a partner¬ 
ship on the life of a partner. 

(f) Losses from the sale of tangible capital as¬ 
sets and uninsured losses from fire, theft, tort and 
contract. 

(g) Rent, repairs and taxes paid in connection 
with a business. 

(h) An amount equal to 5 per cent, of the as¬ 
sessed valuation of real estate, merchandise and 
other tangible property owned and used in the busi¬ 
ness and whether situated within or without the 
Commonwealth. 

(i) Taxes paid on salary or business income tax¬ 
able at iy 2 per cent. 

(j) A deduction of $500 for a husband or wife, 
$250 for a child under eighteen, or a dependent par¬ 
ent, the total of these deductions not to exceed 
$ 1 , 000 . 

(k) Where the income from all sources does not 
exceed $600 a deduction of $300 is allowed. 


MASSACHUSETTS INCOME TAX. 


189 


DEDUCTIONS (a) Personal and living ex- 
NOT ALLOWED, penses. 

(b) Interest on personal in¬ 
debtedness. 

(c) Taxes, insurance, mortgage interest and re¬ 
pairs on taxpayer’s own house or not in connection 
with a business. 

(d) Fiduciary’s expenses. 


TAX RETURNS REQUIRED. 

INDIVIDUALS, Every individual inhabitant 
PARTNERSHIPS, of Massachusetts, male or fe- 
ETC. male, every taxable partner¬ 

ship, association, unincorpor¬ 
ated club, social or fraternal organization, or trust, 
and every executor, administrator, trustee, guard¬ 
ian, conservator, trustee in bankruptcy appointed in 
Massachusetts, assignee for the benefit of credi¬ 
tors, and receivers for foreign corporations, are re¬ 
quired to file an Income Tax Return on or before 
March 1st each year, if, during the preceding year 
they received taxable income of five dollars or over 
from any source. Where a partner has no taxable 
income except from the partnership, no individual 
return is required. 

CORPORATIONS. Corporations need not file re¬ 
turns of their own income but 
where acting in a fiduciary capacity and receiving 
income on behalf of a beneficiary should file fidu¬ 
ciary returns. 


190 


MASSACHUSETTS INCOME TAX. 


HUSBAND Separate Returns are required if 
AND WIFE, either has any taxable income. 

LISTS OF EMPLOYEES Every individual, 
AND INTEREST PAYMENTS, fiduciary, part¬ 
nership, associa¬ 
tion, trust, unincorporated club and every corpora¬ 
tion domestic and foreign doing business in Massa¬ 
chusetts is required to file on or before March 1st 
in each year a list of employees who were paid in 
excess of $1,800 during the preceding year, and a 
list of all residents of Massachusetts to whom it has 
paid annuities or interest payments during the year, 
except in the case of interest paid to a bank, of cou¬ 
pons payable to bearer and of income which is tax 
exempt. 

These returns should be filed even though there 
have been no interest payments or employees re¬ 
ceiving in excess of $1,800. Use the word “None.” 


FOREIGN Foreign corporations doing 

CORPORATIONS, business in Massachusetts 
must file on or before March 
1st a list of Massachusetts shareholders as of the 
previous December 31st. 

CLUBS, ETC. A special blank, Form 3M, is pro¬ 
vided for returns where required 
from clubs, churches, fraternal organizations and 
other associations not organized for profit. 


MASSACHUSETTS INCOME TAX. 


191 


MASSACHUSETTS INCOME TAX- 
INDIVIDUAL. 

Figures Required for March 1st Returns. 

I. Name and address. 

II. Name of wife. 

III. Names and date of birth of children under 
eighteen. 

IV. Income from Salaries. 

V. Income from annuities. 

VI. Profits on sale of securities during the year. 

(1) Amount received from sale of securities (ex¬ 
cept rights). 

(2) Value January 1, 1916, of securities bought 
prior thereto and sold during the year. 

(3) Cost of securities bought since January 1, 
1916, and sold during the year. 

(4) Amount received from sale of rights. 

VII. Interest and dividends received during the 
year from: 

(1) Interest on taxable bonds, bank deposits, etc. 

(2) Cash dividends from foreign corporations. 

(3) Stock dividends from foreign corporations. 

(4) Income from foreign fiduciaries. 

(5) Other dividends which are distribution of 
capital. 

VIII. Business or professional income (cash 
basis). 

(1) Gross cash receipts or total cash receipts 
from sales. 

(2) Cost of merchandise paid for. 

(3) Expenses paid in cash for: 


192 


MASSACHUSETTS INCOME TAX. 


(a) Wages. 

(b) Fuel, light and power. 

(c) Rent. 

(d) Repairs. 

(e) Insurance. 

(£) Taxes. 

(g) Interest. 

(h) Freight and express. 

(i) Advertising. 

(j) Other expense (items). 

(4) Deductions. 

(a) Depreciation. 

(b) Uninsured fire loss. 

(c) Assessed value of personal estate and real 
estate. 

(5) Net profit for year. 

MASSACHUSETTS INCOME TAX- 
FIDUCIARY. 

Figures Required for March 1st Returns. 

I. Name and address. 

II. Title Under of Late of 

III. Date of decease. 

IV. Date of appointment Court Docket No. 

V. Beneficiaries. 

VI. Gross income. 

VII. Interest and dividends received during the 
year from: 

(1) Interest on taxable bonds, bank deposits, etc. 

(2) Cash dividends from foreign corporations. 

(3) Stock dividends from foreign corporations. 


MASSACHUSETTS INCOME TAX. 


193 


(4) Income from foreign fiduciaries. 

(5) Other dividends which are distribution of 
capital. 

VIII. Profits on sales of securities during the 
year. 

(1) Amount received from sale of securities (ex¬ 
cept rights). 

(2) Value January 1, 1916, of securities bought 
prior thereto and sold during the year. 

(3) Cost of securities bought since January 1, 
1916, and sold during the year. 

(4) Amount received from sale of rights. 

IX. Income from annuities. 


MASSACHUSETTS INCOME TAX- 
PARTNERSHIP. 

Figures Required for March 1st Returns. 

I. Name and address. 

II. Nature of business. 

III. Names and home address of partners. 

IV. Each partner’s share of profits in dollars and 
percentage. 

V. Interest and dividends received during the 
year from: 

(1) Interest on taxable bonds, bank deposits, etc. 

(2) Cash dividends from foreign corporations. 

(3) Stock dividends from foreign corporations. 

(4) Income from foreign fiduciaries. 

(5) Other dividends which are distribution of 
capital. 


194 


MASSACHUSETTS INCOME TAX. 


VI. Profits on sale of securities during the year: 

(1) Amount received from sale of securities (ex¬ 
cept rights). 

(2) Value January 1, 1916, of securities bought 
prior thereto and sold during the year. 

(3) Cost of securities bought since January 1, 
1916, and sold during the year. 

(4) Amount received from sale of rights. 

VII. Business or professional income (cash 
basis). 

(1) Gross cash receipts or total cash receipts 
from sales. 

(2) Cost of merchandise paid for. 

(3) Expenses paid in cash for: 

(a) Wages. 

(b) Fuel, light and power. 

(c) Rent. 

(d) Repairs. 

(e) Insurance. 

(f) Taxes. 

(g) Interest. 

(h) Freight and Express. 

(i) Advertising. 

(j) Other expense (items). 

(4) Deductions: 

(a) Depreciation. 

(b) Uninsured fire loss. 

(c) Assessed value of real estate and personal es¬ 
tate. 

VIII. Net profit for year. 


ALPHABETICAL SUMMARY. 


195 


ALPHABETICAL SUMMARY OF THE LAW. 


ABATEMENTS. Application for an abatement 
may be made to the tax commis¬ 
sioner within three months of the date of the tax 
bill and provided an income return has been filed. 

An appeal lies either to the Board of Appeal or 
to the Superior Court, but must be taken within 
thirty days after notice of the decision of the tax 
commissioner. 

Where an Income Return is filed after March 1st, 
the abatement will not reduce the tax below double 
the amount properly taxable. 

ACCIDENT The proceeds of accident insur- 
INSURANCE. ance policies need not be returned 
as income. 

ADMINISTRATORS. An administrator is re¬ 
quired to make a return 
on or before March 1st covering taxable income re¬ 
ceived during the preceding year. 

If appointed after March 1st and the deceased 
died after January 1st without filing an Income Re¬ 
turn, the administrator should at once file the same. 

Administrators must also make a return of net 
profits and file a list of employees receiving over 
$1,800. 

Where a final account is allowed during any year, 
no return covering that year is required from the 
administrator, but the beneficiaries must include the 
income in their individual returns. 



196 


MASSACHUSETTS INCOME TAX. 


ALIMONY. Alimony is not taxable and need not 
be returned as income. 

ANNUITIES. Annuities are taxable at l 1 ^ per 
cent. An annuity is the right to 
receive annually or at other regular intervals a fixed 
and definite sum contingent upon the continued life 
or lives of one or more persons. 

If payments are to be made for a definite term 
and thereafter for such further period as the annui¬ 
tant shall live, such payments are taxable. 

United States pensions or the right to receive ali¬ 
mony under a separation agreement are not taxable 
as annuities. 

APPEALS. See “Abatements.” 

ASSIGNEES. Assignees for the benefit of credi¬ 
tors where such assignees are in¬ 
habitants of Massachusetts or appointed by a Mass¬ 
achusetts court are required to make returns of in¬ 
come and are taxed in the same manner as individ¬ 
uals, except that income payable to a non-resident 
is exempt. 

AUTOMOBILES. An automobile is tangible 
property and should be includ¬ 
ed in the local tax return. 

The expense of an automobile when used entirely 
in business is a proper deduction. 

BAD DEBTS. A deduction for bad debts is al¬ 
lowed only where the debt arose 
during the tax year from some business and was 


ALPHABETICAL SUMMARY. 


197 


actually found to be worthless and charged off on 
the books during the same year. 

BANKS. Banks are required to file a list of em¬ 
ployees receiving over $1,800. For the 
case of banks acting in a fiduciary capacity, see 
“Fiduciaries.” For taxation of income from de¬ 
posits in national banks, trust companies and sav¬ 
ings banks, see “Deposits.” 

BENEFICIARIES. Beneficiaries need not include 
in their individual returns the 
income received from trustees or other fiduciaries, 
although they should include all other taxable in¬ 
come received; except that beneficiaries must re¬ 
turn taxable income received from fiduciaries ap¬ 
pointed by courts outside of Massachusetts or from 
fiduciaries who reside outside of Massachusetts, 
Where the total income does not exceed $600, the 
beneficiary should claim his $300 exemption. 

BETTERMENTS. Betterment assessments, in¬ 
cluding sewer, sidewalk and 
gypsy moth assessments are not allowed as deduc¬ 
tions. 

BLANK FORMS. Blank forms for returns of in¬ 
dividuals, partnerships, fidu¬ 
ciaries and corporations may be obtained from the 
Income Tax Commissioner at the State House. 
While the commissioner may mail blank forms in 
certain cases, the non-receipt of such forms does not 
excuse the tax-payer for failing to file the returns 
as required by the Income Tax Law. 


198 


MASSACHUSETTS INCOME TAX. 


BONDS. Coupons and registered interest received 
on all bonds other than those which are 
tax exempt should be returned as income. 

The tax exempt bonds are United States bonds 
and Massachusetts, State, county and municipal 
bonds marked on their face “tax exempt.” 

The net profit on sales of bonds is taxable at 3 
per cent, and should be returned. 

In determining the profit, the value as of Janu¬ 
ary 1, 1916, is taken as the cost price, except where 
purchase was made after January 1st, in which case 
the actual cost price, including broker’s commission, 
controls. 

Selling price is the actual amount received less 
commission and stamp tax. 

Where a bond carrying accrued interest is pur¬ 
chased such interest may be deducted from interest 
received and the net amount returned. Such ac¬ 
crued interest should be returned by the vendor. 

BONUS. See “Gifts.” 

BROKERS. See “Professional Men.” 

BUSINESS MEN. See “Merchants.” 

CAPITAL ASSETS. A distribution of capital as¬ 
sets is not regarded as a dis¬ 
tribution of income and need not be returned, but 
a distribution of accumulated earnings is income. 
See “Stock Dividends.” 

CHARITIES. The personal property held by lit¬ 
erary, benevolent, charitable and 
scientific institutions and of temperance societies 


ALPHABETICAL SUMMARY. 


199 


incorporated within the Commonwealth is exempt 
from taxation if the income is restricted to the pur¬ 
poses for which they are incorporated. The income 
from the personal property of religious societies, 
whether incorporated or not, and whether held by 
such societies or by trustees for their benefit is tax¬ 
able wherever the same income received by an indi¬ 
vidual would be taxable. 

The personal property of a fraternal society, 
order or association operating under the lodge sys¬ 
tem or for the exclusive benefit of the members of 
a fraternity itself operating under the lodge system, 
and providing life, sick, accident, or other benefits 
for the members of such society, order or associa¬ 
tion, or their dependents, is exempt from taxation. 
See “Trust Funds.” 

CHILDREN. An individual in his return is en¬ 
titled to a deduction from business 
income of $250 for each minor child under eighteen 
years of age, but the total deduction for husband, 
wife and minor children cannot exceed $1,000. 

CHURCHES. Religious organizations whether in¬ 
corporated or not file returns on 

Form 3M. 

CLUBS. Unincorporated clubs are required to 
file income returns. There is a special 
blank, Form 3M. 

They must also file a list of employees receiving 
over $1,800 and a list of residents of Massachusetts 


200 


MASSACHUSETTS INCOME TAX. 


who are paid taxable interest other than by cou¬ 
pons payable to bearer. See “Lodges.” 

COLLATERAL. The income from property 
pledged as collateral security 
for a debt is taxable to the owner and must be in¬ 
cluded in his Income Return. 

COMMISSIONS. Commissions received as a form 
of salary are business income. 
Commissions on renewal premiums received by an 
insurance agent are income. 

CONSERVATORS. See “Fiduciaries.” 

CORPORATIONS. Corporations as such are not 
required to file Income Tax 
Returns in connection with their own business. 

Corporations acting as executors, guardians, 
trustees, or in any fiduciary capacity are required 
to file an Income Return on or before March 1st 
similar to that required of individuals. 

All corporations, domestic and foreign, must file 
a list of employees receiving over $1,800 and a list 
of residents of Massachusetts paid annuities or to 
whom interest payments have been made during 
1916 other than in the form of coupons payable to 
bearer. 

Foreign corporations doing business in Massa¬ 
chusetts must file on or before March 1st a list of 
Massachusetts shareholders as of the previous De¬ 
cember 31st. 


ALPHABETICAL SUMMARY. 


201 


Domestic corporations are not required to file a 
list of shareholders. 

Charitable and other organizations not organized 
for profit must file lists of employees and lists of in¬ 
terest payments as in the case of other corpora¬ 
tions. 

COUPONS. See “Interest.” 

CUSTOM DUTIES. Custom duties when paid 
by a merchant in the course 
of business are a business expense and may be de¬ 
ducted. If paid by an individual on personal ef¬ 
fects they are treated as personal or living expenses 
and cannot be deducted. 

DEBTS. Interest received from debts receivable is 
taxable income. 

Interest paid on notes or debts payable is a proper 
deduction when made in connection with a business. 
See “Bad Debts.” 

DEDUCTIONS. Deductions allowed from busi¬ 
ness income are: 

fa) Bad debts incurred and charged off. 

(b) Depreciation to a reasonable amount. 

(c) Donations where there is a benefit to the busi¬ 
ness. 

(d) Expense of doing business. 

(e) Family deduction not exceeding $1,000, but 
only where husband and wife have lived together 
at least six months during tax year and where 


202 


MASSACHUSETTS INCOME TAX. 


minor child has been under eighteen years during 
six months of such year. 

(f) Five per cent, of assessed valuation of real 
estate, merchandise and other tangible property 
owned and used in business wherever situated. 

(g) Interest paid in connection with a business. 

(h) Losses from sale of tangible capital assets. 

(i) Pensions to retired or injured employees. 

(j) Salaries received are business income. For 
deduction for taxes see “Salaries.” 

(k) Taxes paid against the business. Where re¬ 
turns are on accrual basis accrued Federal income 
and excess-profits taxes may be deducted. 

(l) Two thousand dollars. 

Deductions not allowed are: 

(a) Expense of permanent improvements. 

(b) Personal or living expenses. 

(c) Reserves for insurance or bad debts. 

(d) Taxes and interest not in connection with a 
business. 

(e) Taxes, insurance, interest and repairs on tax¬ 
payer’s own house. 

DEPOSITS. Deposits in a Massachusetts savings 
bank, co-operative bank, or deposits 
of not over $1,000 in the savings department of a 
trust company are exempt and the income there¬ 
from need not be returned; deposits in excess of 
$1,000 in a trust company are not so exempt and 
the whole of the income therefrom must be re¬ 
turned. 

Deposits in national banks and trust companies 


ALPHABETICAL SUMMARY. 


203 


other than as above are not exempt and the income 
therefrom is taxable at 6 per cent. 

DENTISTS. See “Professional Men.” 

DEPRECIATION. A reasonable deduction for 
depreciation of property used 
in business is allowed a merchant or professional 
man. 

DIRECTORS’ Fees paid to directors for attend- 
FEES. ance at meetings are taxable. 

DIVIDENDS. Dividends which are taxable under 
the income tax law are as follows: 

(a) Dividends from corporations organized out¬ 
side of Massachusetts and from foreign fiduciaries. 

(b) Stock dividends where earnings are capital¬ 
ized, otherwise where a paid in surplus is capital¬ 
ized. If paid in stock of the same corporation they 
are taken at par value; if paid in stock of another 
corporation, they are taken at market value at the 
time of payment. 

(c) Dividends from partnerships and trusts which 
have not filed an agreement to pay the tax. 

(d) Salaries based on stockholdings or which 
are in excess of reasonable compensation are taxed 
as dividends. 

Dividends which are non-taxable are: 

(a) Dividends from Massachusetts corporations. 

(b) Dividends from national banks. 

(c) Dividends from American Tel. & Tel. Co., 
New England Tel. & Tel. Co., and Western Union 
Telegraph Co. 


204 


MASSACHUSETTS INCOME TAX. 


(d) Dividends from partnerships and trusts 
which have filed an agreement to pay the tax. 

(e) Dividends on life insurance policies. 

(f) Dividends on shares in co-operative banks. 

DOCTORS. See “Professional Men.” 

EMPLOYEES. Lists of employees receiving sal¬ 
aries or other compensation in ex¬ 
cess of $1,800 must be filed on or before March 1st 
by every individual, fiduciary, partnership and cor¬ 
poration. 


EXECUTORS. An executor is required to make a 
return on or before March 1st 
covering taxable income received during the pre¬ 
ceding year. 

If appointed after March 1st and the deceased 
died after January 1st without filing an Income Re¬ 
turn, the executor should at once file the same. 

Executors must file returns of net profit from 
dealings in intangible property and a list of em¬ 
ployees receiving over $1,800. 

Where a final account is allowed during the year 
no return covering that year is required, but the 
beneficiaries must include the income in their indi¬ 
vidual returns. 

Executors should see to it that beneficiaries file 
with them such claims of exemption as they are 
entitled to. 


ALPHABETICAL SUMMARY. 


205 


EXEMPTIONS. The following classes of income 
are exempt: 

(a) Two thousand dollars of business or profes¬ 
sional income. 

(b) Income from real estate. 

(c) Dividends on shares of Massachusetts cor¬ 
porations and national banks. Dividends on shares 
of American Tel. & Tel. Co., New England Tel. & 
Tel. Co., and Western Union Telegraph Co. 

(d) Dividends on transferable shares of partner¬ 
ships, associations and trusts while file an agree¬ 
ment with the tax commissioner to pay their own 
tax. 

(e) Interests on deposits in Massachusetts sav¬ 
ings banks, co-operative banks or deposits of not 
over $1,000 in the saving departments of trust com¬ 
panies. 

(f) Interest on deposits in Massachusetts Hospi¬ 
tal Life Insurance Company. 

(g) Interest from United States, and State, Coun¬ 
ty and municipal bonds marked “tax exempt.” 

(h) Interest on mortgage loans secured by Mass¬ 
achusetts real estate which is taxed as much or more 
than the amount of the loan and all prior liens. 

(i) There is an exemption up to $1,000 on ac¬ 
count of husband, wife, minor children and depend¬ 
ent parents. See “Deductions.” 

(j) Persons whose total income from all sources 
does not exceed $600 have an exemption of $300. 

EXPENSES. Business expenses may be deducted 
by a merchant or professional man 
taxable at the V /2 per cent. rate. 


206 


MASSACHUSETTS INCOME TAX. 


Personal and living expenses are not deductible. 
See “Deductions.” 

FIDUCIARIES. Executors, administrators, trus¬ 
tees, guardians, conservators, 
trustees in bankruptcy, receivers except of Massa¬ 
chusetts corporations, assignees for the benefit of 
creditors where such assignees are inhabitants of 
Massachusetts or derive their appointment from a 
Massachusetts court are taxable in their fiduciary 
capacity and are required to file income returns on 
or before March 1st, provided, of course, that they 
have received taxable income during the preceding 
year. 

Fiduciaries must also file a List of Interest Pay¬ 
ments and List of Employees receiving over $1,800 
the same as an individual. Fiduciaries have no al¬ 
lowable deductions. 

FIRE LOSS. An uninsured fire loss is a proper 
deduction for a merchant or profes¬ 
sional man, provided that such loss occurs in con¬ 
nection with the business. 

FRATERNAL Fraternal orders, unless exempt, 
ORDERS. file returns on special blanks, 

Form 3M. See “Charities.” 

GIFTS. > Gifts are non-taxable. 

Legacies are non-taxable and need not be re¬ 
turned. 


ALPHABETICAL SUMMARY. 


207 


GUARDIANS. Guardians are required to make 
the same returns and are subject 
to the same taxes as other fiduciaries. See “Fidu¬ 
ciaries.” 

HUSBAND A husband is entitled to an exemp- 
AND WIFE, tion of $500 for a wife living with 
him, of $250 for each child under 
eighteen and of $250 for a dependent parent. 

A wife is entitled to similar exemptions, although 
the total exemptions allowed a husband and wife 
cannot exceed $1,000. 

Separate Returns are required where either has 
any taxable income. 

INCOME TAXBLE. The following income is 
taxable at 6 per cent. 

Six Per Cent. 

(a) Dividends on shares of foreign corporations 
except shares in national banks and of the Ameri¬ 
can Tel. & Tel Co., New England Tel. & Tel. Co., 
and Western Union Telegraph Co. 

(b) Dividends on shares of partnerships, asso¬ 
ciations and trusts having transferable shares ex¬ 
cept where such partnerships, associations and 
trusts have filed with the tax commissioner an 
agreement to pay the tax. 

(c) Interest on bonds and notes of all corpora¬ 
tions, domestic and foreign, except United States 
bonds and such Massachusetts, State, county and 
municipal bonds that are marked “tax exempt” and 
except mortgage notes secured by Massachusetts 


208 


MASSACHUSETTS INCOME TAX. 


real estate, taxed as much or more than the amount 
of the loan and all prior liens. 

(d) Interest on loans and debts receivable. 

(e) Interest on deposits in national banks and 
trust companies except deposits not exceeding 
$1,000 in savings departments of trust companies, 
and except deposits in the Massachusetts Hospital 
Life Insurance Company. 

(f) Income from foreign fiduciaries. 

One and One- The following income is taxable at 
Half Per Cent. \y 2 per cent. 

Income from annuities. 

Excess over $2,000 of wages, salary or other com¬ 
pensation except salaries paid by the United States 
Government. 

Excess over $2,000 of net taxable income from a 
trade or business. 

Three. The following income is taxable at 3 
Per Cent, per cent. The excess of gains over 
losses received from purchases and sales 
of stocks, bonds and other intangible property 
whether taxable or non-taxable. 

INCOME (a) Dividends from Massa- 

NON-TAXABLE. chusetts corporations and na¬ 

tional banks. 

(b) Dividends from American Tel. & Tel. Co., 
New England Tel. & Tel. Co., and Western Union 
Telegraph Co. 

(c) Dividends from partnerships, associations 


ALPHABETICAL SUMMARY. 


209 


and trusts who have filed with the tax commissioner 
an agreement to pay the tax. 

(d) Deposits in Massachusetts savings and co¬ 
operative banks. 

(e) Deposits not exceeding $1,000 in savings de¬ 
partments of trust companies. 

(f) Wages, salary or other compensation up to 

$ 2 , 000 . 

(g) Business and professional income up to 

$ 2 , 000 . 

(h) Interest on United States bonds and from 
Massachusetts, State, county and municipal bonds 
marked “tax exempt.” See “Salaries.” 

INSURANCE. Proceeds of life or endowment in¬ 
surance are not regarded as in¬ 
come. 

Dividends paid by life insurance companies in the 
nature of a returned premium are not regarded as 
income. 

Fire insurance received as indemnity for property 
destroyed is not income. 

The cost of insurance in connection with a busi¬ 
ness is a proper deduction. 

The cost of insurance on the taxpayer's home is 
a personal or living expense and not deductible. 

INTEREST. A List of Interest Payments to resi¬ 
dents of Massachusetts, except cou¬ 
pons payable to bearer, interest paid by banks 
on checking accounts, and except interest paid to a 
bank or trust company, must be filed March 1st by 


210 


MASSACHUSETTS INCOME TAX. 


every individual, partnership and corporation. For 
interest which is regarded as taxable income or 
which may be deducted, see “Income Taxable” and 
“Income Non-Taxable.” 

For interest allowed on intangible property 
pledged as collateral, see “Bulletins No. 1 and 5,” 
issued by the Tax Commissioner. 

For interest paid by a partnership on a partners 
capital see “Partnership.” 

For interest on deposits in banks and trust com¬ 
panies, see “Deposits.” 

INVENTORY. The income tax law calls for a re¬ 
turn based on actual cash receipts 
and disbursements, or (with the consent of the tax 
commissioner) returns may be made on an inven¬ 
tory or profit and loss basis. 

LAWYERS AND 

JUDGES. See “Professional Men.” 

LIFE 

INSURANCE. See “Insurance.” 

LIMITED Limited partnerships are not 

PARTNERSHIPS, specifically mentioned in the 
income tax law. They should 
make returns and are taxed as ordinary partner¬ 
ships. 

LIVING Living and personal expenses are 
EXPENSES. not deductible in an individual re¬ 
turn. 


ALPHABETICAL SUMMARY. 


211 


LIVING The value of living quarters fur- 

QUARTERS. nished to an individual as part of 
his compensation should be re¬ 
turned as income. 

LODGES. See “Trust Funds,” “Fraternal Orders,” 
“Masonic Organizations.” 

LOSSES. Losses actually sustained in trade on 
debts receivable incurred during the 
tax year and which have been determined to be 
worthless and actually charged off during the year, 
may be deducted in an accrual return by a mer¬ 
chant or professional man liable for the 1^4 per 
cent, tax on business income. 

Losses incurred by an individual in dealings in 
intangible personal property may be offset against 
gains. Only the net gains are taxed. 

MARGIN. Stocks, bonds or other securities car¬ 
ried on margin with a broker are re¬ 
garded as the property of the client and the income 
therefrom should be accounted for by the client in 
his individual return. See “Pledge.” 

MASONIC No returns are required ex- 

ORGANIZATIONS. cept List of Employees paid 
over $1,800 and List of In¬ 
terest Payments. 

MERCHANTS. Merchants doing business as in¬ 
dividuals and professional men 
whose income from all sources, taxable and non- 


212 


MASSACHUSETTS INCOME TAX. 


taxable, exceeds $2,000, are required to file an in¬ 
come tax return on or before March 1st. The re¬ 
turn must be filed even though the allowable de¬ 
ductions bring the net taxable income below $2,000. 

They may return their income either on the basis 
of actual cash receipts and disbursements or on an 
inventory or profit and loss basis, whichever they 
prefer, although in the latter case permission of the 
Tax Commissioner must be first obtained. 

A merchant’s drawing account, even though car¬ 
ried on the books as wages or salary, must not be 
included in the expenses as it is presumed to be 
paid from the net profits of the business. 

They must return a list of employees receiving 
over $1,800. 

For a list of what is allowable as business ex¬ 
penses, see ‘‘Deductions.” 

See also “Professional Men.” 

MORTGAGES. Interest on mortgages which are 
secured by real estate located in 
Massachusetts need not be returned as income 
where such mortgages and all prior liens do not ex¬ 
ceed the assessed value of such real estate. 

NOTES. See “Income Taxable” and “Interest.” 
OBSOLESCENCE. See “Deductions.” 
PARENTS. See “Exemptions.” 

PARTNERSHIPS. Partnerships of which any 
member is an inhabitant of 
Massachusetts and which have a usual place of busi- 


ALPHABETICAL SUMMARY. 


213 


ness and carried on business in the Commonwealth 
between Jan. 1 and June 30, of the tax year must 
file partnership returns. 

If any of the partners are non-residents the inter¬ 
est of the Massachusetts partners only is taxed. 
The tax is not based upon the business done within 
the Commonwealth, but upon the Massachusetts 
partners’ interest in the firm. 

Each resident partner should file his individual 
exemption and deduction claims, but such claims 
cannot exceed his share of the net business income 
taxable at 1% per cent. 

Interest on a partner’s capital is not a partnership 
deduction. 

Where there is but one Massachusetts partner 
and his interest is restricted to the Massachusetts 
business the partnership return need cover only 
that business. 

A partner in a firm which has no place of busi¬ 
ness in the Commonwealth is taxed on his income 
from the firm as business income and has the usual 
$2,000 exemption and family deductions allowed 
an individual. A partnership may include insurance 
premiums on the lives of partners as a business ex¬ 
pense. 

Where a partner has no taxable income except 
from the partnership, no individual return is re¬ 
quired. 

Partnerships making returns upon an accrual 
basis may deduct accrued Federal income and Ex¬ 
cess Profits taxes. 


214 


MASSACHUSETTS INCOME TAX. 


PARTNERSHIPS HAVING Partnerships, asso- 
TRANSFERABLE SHARES, ciations and trusts 

having transferable 

shares are required to file Income Tax Returns. 

They must also file lists of employees receiving 
over $1,800. 

They may agree with the Tax Commissioner to 
pay the Income Tax, in which case their sharehold¬ 
ers are exempt, otherwise they are not exempt. 

They are required to file a list of Massachusetts 
residents to whom interest is paid on bonded or 
other indebtedness. 

They are required, unless they file the agreement 
above referred to, to file a list of their shareholders. 

PENALTIES. For failure to file returns on or be¬ 
fore March 1st, unless reasonable 
excuse satisfactory to the Tax Commissioner is 
made, the penalty is $5 per day. 

Failure to file returns after notice from the Tax 
Commissioner involves fine or imprisonment. 

Failure to file list of employees and statement 
of taxable interest and annuities paid to Massa¬ 
chusetts residents involves a fine. 

Failure upon the part of a foreign corporation to 
file a list of Massachusetts shareholders involves a 
fine. 

Penalties affect individuals, fiduciaries, partner¬ 
ships, trusts and corporations. 

PENSIONS. United States Government, teachers 
and State employees pensions are 
not regarded as annuities and need not be returned. 


ALPHABETICAL SUMMARY. 


215 


If the pension formed a part of the contract of em¬ 
ployment with a corporation, firm or individual 
and can be claimed as a matter of right, it is an an¬ 
nuity and taxable. 

PLEDGE. Where stocks or bonds are carried on 
margin or where property is mortgaged 
or pledged, the owner of the equity is regarded as 
the owner and should return the taxable income 
from such stocks,bonds or other property. 

PROFESSIONAL Professional men, including 
lawyers, doctors, dentists, ar¬ 
chitects, brokers, teachers, judges, etc., like mer¬ 
chants, must make a return if their gross income 
from all sources exceeds $2,000, or they have any 
other taxable income. This is true even though 
their allowable deductions bring their net taxable 
income to below $2,000. 

They may deduct the expenses of doing business. 
See “Deductions.” 

They should make a return on a cash basis, that 
is, based on actual cash receipts and disbursements. 
If permitted to make returns on an accrual basis, 
they may deduct accrued Federal Income and Ex¬ 
cess Profits Taxes. 

Professional men must return as income not only 
the net profits accruing from their business, but their 
individual income from taxable stocks, bonds and 
other intangible property and their net profits from 
dealings in intangible property. 

They must file a list of employees receiving over 

$ 1 , 800 . 


216 


MASSACHUSETTS INCOME TAX. 


PROFITS AND The excess of profits over losses 
LOSSES is taxable at 3 per cent. This 

tax applies not only to intangible 
property such as stocks, bonds and other securities, 
but covers both taxable and non-taxable securities. 

Profit is based on January 1, 1916, value, but 
where property is purchased subsequent to January 
1st, the cost is based on actual cost including com¬ 
mission. Selling price is based on actual selling 
price including commission and stamp tax. 

The real owner and not the broker or other per¬ 
son in whose name the securities may stand is liable 
for the tax. 

Carrying charges or interest paid for securities 
carried on margin are not included in cost. 

A dealer in securities may apportion business ex¬ 
pense between the amounts taxable at 3 per cent, 
and 1% per cent, in proportion to net income pro¬ 
duced. 

Where securities are bought at different times 
and different amounts and sold in different amounts 
the cost is not averaged, but the sale is considered 
as the sale of the first securities purchased. 

Where securities of a Massachusetts corpora¬ 
tion are received as a stock dividend the excess 
above par value is taxable at 3 per cent, when the 
shares are sold. 

REAL ESTATE. Generally speaking, profits and 
losses arising from the purchase 
and sale of real estate as well as rents received from 
real estate are non-taxable. 


ALPHABETICAL SUMMARY. 


21? 


Where, however, the principal business of an in¬ 
dividual is that of a dealer in real estate, his net 
profits and rents will be regarded as business in¬ 
come taxable at 1 y 2 per cent. 

RECEIVERS. See “Fiduciaries.” 

RENTS. Rents received from real estate are not 
taxable, except in the case of a dealer in 

real estate. 

Rent paid is a proper business expense for a busi¬ 
ness or professional man. 

The value of living quarters furnished as part 
of the compensation of an individual should be re¬ 
turned as income. 

Rent paid for the occupancy of the taxpayer’s 
own house is a living expense and not deductible. 

RETURNS. Income Tax Returns will be held in 
strict confidence by the State author¬ 
ities. Heavy penalties are imposed for any disclos¬ 
ure of their contents. Local tax assessors will not 
be permitted to examine the Income Tax Return 
filed with the Income Tax Commissioner. 

Income Tax Every individual inhabitant of Massa- 
Retums. chusetts, male or female, every tax¬ 
able partnership, association, unincor¬ 
porated club, social or fraternal organization or 
trust, and every executor, administrator, trustee, 
guardian, conservator, trustee in bankruptcy ap¬ 
pointed in Massachusetts, assignee for the benefit of 


218 


MASSACHUSETTS INCOME TAX. 


creditors, and receiver for a foreign corporation is 
required to file an income tax return on or before 
March 1st if they received during the tax year 
taxable income from any of the following sources: 
(minimum $5.) 

(a) Gross income exceeding $2,000 from any 
source whatever taxable or non-taxable. 

(b) Income from an annuity or from a foreign 
fiduciary. 

(c) Interest to any amount from bonds of cor¬ 
porations, domestic or foreign, excepting only bonds 
of the United States, and such State and municipal 
bonds as are stamped “tax exempt.” 

(d) Interest to any amount from deposits in na¬ 
tional banks, from money loaned, from notes, or 
other debts receivable, except mortgage notes se¬ 
cured by Massachusetts real estate. 

(e) Interest to any amount from deposits ex¬ 
ceeding $1,000 in any savings bank or savings de¬ 
department of a trust company, excepting only a 
deposit in the Massachusetts Hospital Life Insur¬ 
ance Co. 

(f) Dividends to any amount from foreign cor¬ 
porations except national banks and except divi¬ 
dends of the American Tel. & Tel. Co., the New 
England Tel. & Tel. Co., and the Western Union 
Telegraph Co. 

(g) Dividends to any amount from real estate 
trusts and other associations and trusts having 
transferable shares except from those having filed 
their agreement with the Tax Commissioner to pay 
their own tax. 


ALPHABETICAL SUMMARY. 


219 


(h) Net profits to any amount arising from the 
purchase and sale of stocks, bonds and other intan¬ 
gible property. 

(i) Income Tax Returns are required in the above 
cases, even though by reason of allowable deduc¬ 
tions no tax is assessed. 

Local Returns. A local return should be made to 
local assessors where the taxpayer 
resides, covering tangible property as of April 1st. 

List of Every individual, fiduciary, partner- 

Employees ship, association or trust and every 
and Interest corporation doing business in Massa- 
Payments. chusetts is required to file on or be¬ 
fore March 1st a list of employees who 
were paid in excess of $1,800, and a list of residents 
of Massachusetts to whom payments of interest 
have been made. 

List of Shareholders. Every foreign corporation, 
and every association or 
trust having transferable shares is required to file 
on or before March 1st a list of its Massachusetts 
shareholders as of the preceding December 31. 

RIGHTS. Rights under Massachusetts law are 
treated as capital and need not be re¬ 
turned as income. If sold, they are taxed as gain 
from dealing in intangible personal property, at 3 
per cent. 


220 


MASSACHUSETTS INCOME TAX. 


ROYALTIES. Income from royalties is treated as 
business income. 

SALARIES. Salaries or compensation which must 
be returned include: 

(a) Salaries or other compensation for services. 

(b) Salaries from the United States. This item, 
however, may be included in the deductions. 

(c) Income from a partnership not doing busi¬ 
ness in Massachusetts. 

(d) Value of living quarters furnished. 

The item of salaries does not include and no re¬ 
turn should be made of: 

(a) Salary, wages or profits from an individual 
business or from a partnership of which the tax¬ 
payer is a member and which does business in 
Massachusetts. 

(b) Gifts received including a bonus, which the 
employer does not charge as an expense. 

Individuals, partnerships, fiduciaries and corpora¬ 
tions should file lists of salaries paid in excess of 
$1,800. 

A salary is business income, hence the individual 
taxpayer may enter on his Tax Return under the 
item “salary/’ a deduction for the taxes paid dur¬ 
ing the year on the salary item for the previous 
year. 

Salaries paid to partners are not an allowable de¬ 
duction in Massachusetts. 

SAVINGS BANKS. Deposits up to $1,000 in sav¬ 
ings banks or savings depart¬ 
ments of trust companies are exempt from taxa- 


ALPHABETICAL SUMMARY. 


221 


tion and the income therefrom need not be returned. 

Savings banks are required to file lists of salaries 
exceeding $1,800. 

SCRIP. Scrip certificates issued by a corporation 
in lieu of dividends are income and 
should be so returned. 

STOCKS AND See “Income Taxable/’ “Income 
BONDS. Non-Taxable” and “Bonds.” 

Stocks purchased on margin are the property of 
the client and not of the broker, and the income 
therefrom must be returned by the owner. 

STOCK Where stock dividends represent 

DIVIDENDS, a distribution of accumulated earn¬ 
ings they are taxable as income. 
If the dividend is in stock of the same company 
it is taxed at par, if in stock of another company 
it is taxed at market value at the time of distribu¬ 
tion. Where they represent a distribution of capi¬ 
tal assets they are not regarded as income. 

TAXES. The Income Tax Law imposes a tax upon 
three kinds of income, viz.: 

Six Per Cent. A 6 per cent, tax on income from 
certain intangible property, includ¬ 
ing stocks, bonds, notes, national bank and trust 
company deposits, money at interest, and transfer¬ 
able shares of partnerships, associations and trusts 
which have not filed an agreement to pay the tax. 


222 


MASSACHUSETTS INCOME TAX. 


One and One- A iy 2 per cent, tax on income 
Half Per Cent, from annuities and on the excess 
over $2,000 of income from pro¬ 
fessions, employments, trades or business. 

Three A 3 per cent, tax on the excess of gains 
Per Cent, over losses, from the purchase and sale 
of securities or other intangible prop¬ 
erty including shares in Massachusetts corporations 
and other tax exempt securities 

For a statement of taxable and non-taxable in¬ 
come, exemptions and deductions, see “Income 
Taxable,” “Income Non-Taxable,” “Exemptions” 
and “Deductions.” 

Tax bill will be mailed September 1st. Tax bills 
are payable October 15th. 

The Tax Commissioner may reassess after Sep¬ 
tember 1st. Additional taxes are payable fourteen 
days after notice. 

Taxes may be paid either to the Tax Commission¬ 
er or to the District Income Tax Assessors. Fail¬ 
ure to receive a tax bill is no excuse. Six per cent, 
interest is charged on unpaid taxes. 

TEACHERS. See “Professional Men.” 

TRUST Deposits not over $1,000 in the 

COMPANIES, savings departments of trust com¬ 
panies are exempt and the in¬ 
come from the same need not be returned. Where 
such deposits exceed $1,000 the income from the 
whole is taxable. 


ALPHABETICAL SUMMARY. 


223 


Other deposits in trust companies are taxable 
and the interest on the same should be returned 
as income. 

Trust companies must file lists of employees re¬ 
ceiving compensation in excess of $1,800 and lists 
of interest payments. 

TRUSTEES. Trustees who are residents of Mass¬ 
achusetts or derive their appoint¬ 
ment from a Massachusetts court are taxable in 
their fiduciary capacity on income received and paid 
or accumulated for residents of Massachusetts. 
They should make a fiduciary return. See “Mason¬ 
ic Organizations.” 

Trustees should claim the benefit of the $300 ex¬ 
emption allowed to persons whose total income does 
not exceed $600. 

Trustees are required to file a list of employees 
paid in excess of $1,800. 

Trustees-are required at least once during each 
five-year period to make a return of net profits 
arising from the purchase and sale of intangible 
property. 

Trustees are not allowed any deductions for taxes 
or other expenses. 

TRUST FUNDS. Where securities or property 
are held in trust by individuals 
or unincorporated associations for general charit¬ 
able purposes the income is taxable wherever the 
same income if received by an individual would be 
taxable, except income not to be expended in Mass- 


224 


MASSACHUSETTS LOCAL TAXES. 


achusetts as in the case of war relief and income 
from trust funds of a fraternal organization operat¬ 
ing under the lodge system and providing for bene¬ 
fits for its members or their dependents. See 
“Charities,” “Masonic Organizations.” 

WAGES. See “Salaries.” 

WIFE. See “Husband.” 

WITHHOLDING There is no withholding at 
AT SOURCE. source under the Massachu¬ 
setts Income Tax Law. 

(2) MASSACHUSETTS LOCAL TAXES. 

INDIVIDUALS AND Individuals and partner- 
PARTNERSHIPS. ships are taxed locally and 
at the local rate on real 
estate, machinery, merchandise and other tangible 
property. 

Intangible property, such as salaries, dividends, 
interest, rents and income of all kinds is separately 
taxed under the United States and Massachusetts 
Income Tax Laws. 

CORPORATIONS. Domestic business corpora¬ 
tions in Massachusetts are 
taxed locally and at the local rate on their real 
estate and machinery by the cities or towns in the 
Commonwealth where such property is situated. 
The value of such property taxed locally is deducted 
in figuring the corporation excise tax. 


MASSACHUSETTS CORPORATION TAX. 


225 


(3) MASSACHUSETTS BUSINESS CORPO¬ 
RATION TAX. 


SCOPE OF THIS ARTICLE. 

SCOPE. This article covers the present method 
and the proposed new method of taxing 
domestic and foreign business corporations in 
Massachusetts. For the special provisions covering 
public service corporations, banks and insurance 
companies, reference is made to the various stat¬ 
utes. 

THE PRESENT BUSINESS CORPORATION 
TAX LAW. 

DOMESTIC The present Massachusetts 

CORPORATIONS, law in force in 1918 govern¬ 
ing the taxation of domestic 
business corporations is contained in the Acts of 
1914, Chapter 198. 

This Act provides for taxation of the value of 
shares composing the capital stock of the corpora¬ 
tion based on net worth with certain deductions, 
or in certain cases on a maximum of 120 per cent, 
of the tangible property and taxable securities with 
similar deductions. 

The sections of the act which apply to the two 
methods of taxation are as follows: 



226 


MASSACHUSETTS CORPORATION TAX. 


Net Worth “The tax commissioner shall ascertain 
Section 41. from the returns or otherwise the true 
market value of the shares of each 
corporation * * * and shall establish there¬ 

from the fair cash value of all of said shares con¬ 
stituting its capital stock on the preceding first 
day of April * * * which, unless by the char¬ 

ter of the corporation a different method of ascer¬ 
taining such value is provided, shall for the pur¬ 
poses of this part be taken as the true value of its 
corporate franchise. 

From such value there shall be deducted * * * 
in the case of a domestic business corporation, the 
value of the works, structures, real estate, ma¬ 
chinery, poles, underground conduits, wires and 
pipes owned by it within the Commonwealth sub¬ 
ject to local taxation, and of securities which if 
owned by a natural person resident in this Com¬ 
monwealth would not be liable to taxation; also the 
value of its property situated in another state or 
country and subject to taxation therein. 

There shall not be deducted the value of securi¬ 
ties which if owned by a natural person resident in 
this Commonwealth would be liable to taxation, 
nor shall there be deducted the value of any shares 
of stock of the corporation itself owned directly or 
indirectly by it or for its benefit. * * * ” 

Maximum “Every corporation subject to the pro- 
Section 43. visions of Section 40 (domestic busi¬ 
ness corporations) shall annually pay 
a tax upon its corporate franchise after making the 


MASSACHUSETTS CORPORATION TAX. 227 

deductions provided for in Section 41 at (the state 
rate) but the said tax upon the value of the corpor¬ 
ate franchise of a domestic corporation after making 
the deductions provided for in Section 41 shall not 
exceed a tax levied at the rate aforesaid upon an 
amount, less said deductions, 20 per cent, in excess 
of the value, as found by the Tax Commissioner, of 
the works, structures, real estate, machinery, poles, 
underground conduits, wires and pipes, and mer¬ 
chandise, and of securities which, if owned by a 
natural person resident in this Commonwealth 
would be liable to taxation; and the total amount 
of the tax to be paid by such corporation in any 
year upon its property locally taxed in this Com¬ 
monwealth and upon the value of its corporate 
franchise shall amount to not less than one-tenth 
of 1 per cent, of the market value of its capital stock 
at the time of said assessment, as found by the Tax 
Commissioner. 

FOREIGN Foreign corporations doing 

CORPORATIONS, business in Massachusetts are 
taxed locally upon their real 
estate, machinery and merchandise and in addition 
thereto the Commonwealth levies an excise tax of 
one-fiftieth of 1 per cent, of the authorized capital 
stock up to $10,000,000 If the authorized capital 
stock exceeds $10,000,000, an additional tax of one- 
hundredth of 1 per cent, is levied upon the excess. 

TRANSFER There is a Massachusetts stamp tax 
TAX. of two cents on each $100 of par 

value covering all transfers of 


shares. 


228 


MASSACHUSETTS CORPORATION TAX. 


HOW THE TAX IS FIGURED. 

BASED ON VALUE The State tax on domestic 
OF SHARES. corporations is based pri¬ 

marily upon the market 
value of the shares composing the capital stock of 
the corporation; hence it these are bought and sold 
publicly the assessment will follow market quota¬ 
tions. 

Where there are no such sales the assessments 
will usually follow the valuations stated in the Tax 
Return and Certificate of Condition, although the 
Commissioner has the right to consider any other 
data which may come to his notice. 

In the case of the ordinary business or manufac¬ 
turing corporation whose stock is not dealt in on 
the market and whose assets consist of real estate, 
machinery, merchandise, cash and debts receivable, 
all located in Massachusetts, the state tax will 
usually be based upon the value of its net assets 
less real estate and machinery which are taxed 
locally. 

In no event, however, under the law, should the 
valuation for purposes of taxation exceed an amount 
20 per cent, in excess of the tangible property and 
taxable securities after deducting real estate and 
machinery taxed locally, non-taxable securities and 
taxable property located outside of Massachusetts. 

OUT OF STATE In order to obtain the bene- 
PROPERTY. fit of out-of-the-state deduc¬ 
tions, domestic corporations 
should obtain and exhibit to the Commissioner tax 


MASSACHUSETTS CORPORATION TAX. 


229 


bills showing that such property has been taxed 
where located. 

Out-of-the-state cash and receivables will be de¬ 
ducted only where the corporation has a place of 
business out of the Commonwealth and such prop¬ 
erty is subject to taxation where located. 

Foreign corporations having property in Massa¬ 
chusetts are taxed locally and at the local rate on 
real estate, machinery, merchandise and other tan¬ 
gible property where the same is situated. 


FORMULAE FOR DETERMINING THE 
STATE TAX. 


Assets. 

A = Real Estate in Mass. 

B = Machinery in Mass. 

C = Merchandise in Mass. 

D = Cash and Accounts Receiv¬ 
able. 

E = Taxable Securities including 
notes. 

F = Other property in Mass. 

G = Real Estate taxed outside of 


Liabilities. 

K = Capital Stock. 

L = Accounts Payable. 
M = Notes Payable. 

N = Other Debts. 


Mass. 

H = Machinery taxed outside 
Mass. 

I = Merchandise taxed outside 
J = Other property taxed outside 
of Mass. 

K = Non-Taxable Securities. 


NET ASSET FORMULA. 

(A + B + C+D + E+F + G+H+I + J+K) —(L + M + N) 
— (A + B + G + H + I + J + K) = Assessment. 

120% MAXIMUM FORMULA. 

/^ A+B + C + B + G + H+ I ) — (A + R + T. + H-I-T4-J4-K) 

= Assessment. 



230 MASSACHUSETTS CORPORATION TAX. 

Whichever of the two formulae results in the 
lower figures gives the probable basis of assessment, 
and when multiplied by the State tax rate will give 
the amount of the tax. 

TAX RETURNS REQUIRED. 

The present law requiring Tax Returns from do¬ 
mestic business corporations is contained in the 
Acts of 1914, Chapter 198, viz.— 

APRIL 10TH “Every corporation organized un- 
RETURN. der the general or special laws of 

Section 40. the Commonwealth for purposes of 

business or profit, having a capital stock divided 
into shares * * * shall annually between the 

first and tenth days of April make a return to the 
Tax Commissioner under oath of its treasurer, stat¬ 
ing the name of the corporation, its place of busi¬ 
ness and setting forth as of the first day of April 
of the year in which the return is made, the total 
authorized amount of the capital stock of the cor¬ 
poration; the amount issued and outstanding and 
the amount then paid thereon; the classes, if any, 
into which it is divided; the par value and number 
of its shares; the market value of the shares of its 
stock; and of each class of its stock if there are two 
or more classes; a statement in such detail as the 
Tax Commissioner may require of the works, struc¬ 
tures, real estate, machinery, poles, underground 
conduits, wires and pipes and of the merchandise 
and other assets belonging to the corporation with 
the value thereof, and of the liabilities of the cor- 


PROPOSED CORPORATION TAX. 


231 


poration; and in the case of domestic business cor¬ 
porations a statement of such assets as are without 
the Commonwealth * * * and a complete list 

of the shareholders of the corporation, their resi¬ 
dence, the amount and classes of stock if more than 
one belonging to each.” 

WHEN PAYABLE. Tax bills are sent out Sep¬ 
tember 20th. Ten days are 
allowed for an appeal. See “Taxpayer’s Calendar.” 

THE PROPOSED NEW BUSINESS CORPORA¬ 
TION TAX LAW. 

The Massachusetts Legislature of 1918 is expect¬ 
ed to repeal the present law and to provide for the 
taxation of domestic and foreign business corpora¬ 
tions upon an income basis. 

The new law will not go into effect, however, un¬ 
til after the Tax Returns required by the present 
law have been filed on April 10th and the April 1st 
assessment thereunder has been made. The new 
law will apply to corporate income for the year 
1918 and thereafter. 


232 


MASSACHUSETTS CORPORATION TAX. 


TEXT OF THE PROPOSED NEW LAW. 
(Senate Bill No. 28—1913.) 

An Act Imposing an Excise Tax upon the Franchises of Domestic 
Business Corporations. 

Be it enacted, etc., as follows: 

Section 1. The provisions of Part III of chapter four hundred and 
ninety of the acts of the year nineteen hundred and nine and acts in 
amendment thereof and in addition thereto, so far as they apply to the 
taxation of corporations organized under the laws of this commonwealth 
to which the provisions of chapter four hundred and thirty-seven of the 
acts of the year nineteen hundred and three and acts in amendment 
thereof and in addition thereto are applicable, are hereby repealed, 
except in so far as they are specifically made applicable by this act. 
Every such corporation, hereinafter called domestic business corporation, 
shall be subject to an excise tax on its corporate franchise, which shall 
be levied by the tax commissioner in the manner hereinafter provided. 

Section 2. In the year nineteen hundred and eighteen, and in each 
year thereafter, there shall be levied as an excise upon the corporate 
franchise of every domestic business corporation a tax at the rate of five 
per cent of the net income, as hereinafter defined, received by such cor¬ 
poration during the previous calendar year from business carried on 
within this commonwealth. Such tax shall be levied by the tax commis¬ 
sioner in the manner hereinafter prescribed. 

Section 3. The excise tax, provided by section two of this act, upon 
the corporate franchise of any domestic business corporation shall in no 
case be less than the greatest of the three amounts (o), (i>), or (c) 
herein stated:— 

(a) An amount equal to five tenths of one per cent of the fair cash 
value of the tangible personal property, other than machinery, owned by 
such corporation and not located outside this commonwealth: provided, 
that in determining the fair cash value of such tangible personal prop¬ 
erty the average amount of value for the year shall be taken to be the 
fair cash value thereof, and that such average amount of value shall be 
determined in such manner as the tax commissioner shall deem just. 

( b ) An amount equal to one tenth of one per cent of the amount of 
such corporation’s issued and outstanding capital stock, surplus and 
undivided profits, on the last day of the previous calendar year, and of 
the average amount of such corporation’s indebtedness during such year 
in excess of two hundred per cent of such amount of issued and out¬ 
standing capital stock. 

(c) An amount equal to three tenths of one per cent of the fair cash 
value of any securities the interest and dividends from which, if received 
by an inhabitant of this commonwealth, would be taxable under the pro¬ 
visions of chapter two hundred and sixty-nine of the acts of the year 
nineteen hundred and sixteen and acts in amendment thereof and in 
addition thereto. 


PROPOSED CORPORATION TAX. 


233 


Section 4. The net income of a domestic business corporation tax¬ 
able under section two of this act shall be the gross income received 
from all sources in the previous calendar year, less the following deduc¬ 
tions:— 

(a) The ordinary and necessary expenses paid within the year in the 
maintenance and operation of its business and properties, including 
rentals or other payments required to be made as a condition to the 
continued use or possession of property in which such corporation has 
not taken or is not taking title, or in which it has no equity: provided, 
that no deduction shall be made for any expenditure for additions to 
property, permanent improvements, or betterments. 

( b) A reasonable allowance for the depreciation and obsolescence of 
property within the year, based upon the cost of such property and its 
estimated life, and for the depletion within the year of wasting assets 
owned by the corporation: provided, that no such allowance shall be 
made unless it is actually charged off within the year; and provided, 
further, that in the case of property acquired prior to January first, 
nineteen hundred and seventeen, such allowance shall be based upon the 
fair cash value as of that date; and provided, further, that when such 
allowance shall equal the cost of such property or wasting assets, or, in 
case of such property acquired prior to January first, nineteen hundred 
and seventeen, shall equal the fair cash value of such property as of that 
date, no further allowance for depreciation, obsolescence, or depletion 
shall be made; and provided, further, that with the approval of the tax 
commissioner such corporation may, in lieu of the aforesaid allowance 
for depreciation and obsolescence, be allowed to deduct actual expenses 
of replacement and extraordinary repairs, and with such approval may 
in any year defer such deductions in whole or in part to one or more 
subsequent years. 

(c) All taxes paid within the year to the United States, or to any 
other nation, or to any state, county, city, town, or other taxing district, 
except taxes due under this act and assessments for benefits. 

( d) Interest paid within the year on indebtedness of such corporation: 
provided, that such deduction for interest shall not exceed the interest 
upon an amount of indebtedness fifty per cent in excess of the amount 
of the issued and outstanding capital stock, surplus, and undivided prof¬ 
its of such corporation; provided, however, that in the case of indebted¬ 
ness wholly secured by property collateral, tangible or intangible, the 
subject of sale or hypothecation in the ordinary business of such cor¬ 
poration, as dealer only in such property, collateral, or as lender of the 
funds thereby procured, the interest paid upon such indebtedness may 
be deducted up to an amount of such indebtedness not exceeding the 
value of such property collateral. 

( e ) Losses from the sale within the year of capital assets, and losses 
sustained within the year by fire, theft or other casualty, or amounts 
paid within the year on account of claims in law or equity, when not 
compensated by insurance or otherwise: provided, that no deduction 
shall be made for any such losses or payments as have had the effect of 
decreasing the inventory used in determining the taxable income of such 
corporation. 


234 


MASSACHUSETTS CORPORATION TAX. 


(/) The amount of any debts receivable arising from the conduct of 
the business of such corporation subsequent to December thirty-first, 
nineteen hundred and sixteen, determined by such corporation to be 
worthless and actually charged off within the year: provided, that no 
deduction shall be made for debts ftceivable as income unless they have 
been included as income in a return made under this act. 

(ff) An amount equal to five per cent of the assessed value of the 
tangible property, real and personal, owned by such corporation within 
and without this commonwealth, upon which a property tax has been paid 
within the year. In case such assessed value is by law directed to be 
placed at a fractional part of the true value, the tax commissioner shall 
increase in due proportion the deduction herein authorized. In case any 
such tangible property located outside of this commonwealth is actually 
taxed in respect of its income and not in respect of its capital value by 
the state in which it is located, the tax commissioner may determine its 
value in such manner as he may deem just, and may allow a deduction 
of an amount equal to five per cent of the value so determined. 

(h) Interest or dividends which are exempt from taxation under sec¬ 
tion two of chapter two hundred and sixty-nine of the acts of the year 
nineteen hundred and sixteen, and income derived from forest lands 
classified under chapter five hundred and ninety-eight of the acts of the 
year nineteen hundred and fourteen. 

Section 5. In case a domestic business corporation carries on busi¬ 
ness outside this commonwealth, the tax commissioner shall determine 
in the following manner the proportion of the net income received from 
business carried on within this commonwealth. 

(o) In the case of a manufacturing corporation two thirds of the net 
income shall be apportioned to the state or states in which manufac¬ 
turing operations are carried on, and one third shall be apportioned to 
the state or states in which such corporation owns or rents premises for 
the sale of its products. If manufacturing operations are carried on in 
two or more states, the net income apportioned in respect of such opera¬ 
tions shall be divided between such states in proportion to the amount 
of value of the products manufactured in each such state; and if such 
premises for the sale of products are owned or rented in two or more 
states, the net income apportioned in respect of such premises shall be 
divided between such states in proportion to the gross receipts in each 
such state. 

(6) In the case of a mercantile corporation one-half of the net income 
shall be apportioned to the state or states in which the tangible property 
of such corporation is located, in proportion to the average amount of 
value of such property in each such state, and one-half shall be appor¬ 
tioned to the state or states in which such corporation owns or rents 
premises for the transaction of business, in proportion to the gross 
receipts of such corporation in each such state. 

(c) In the case of a corporation carrying on both mercantile and man¬ 
ufacturing business, the net income from each class of business shall be 
apportioned, as nearly as may be, according to the rules laid down in 
(o) and (t). 


PROPOSED CORPORATION TAX. 


235 


(d) In the case of any other kind of corporation there shall be de¬ 
ducted from the total net income of such corporation a proportion cor¬ 
responding to the proportion which the gross receipts of such corpora¬ 
tion from business carried on outside the commonwealth in places where 
such corporation owns or rents premises for the transaction of business 
bears to the total gross receipts of such corporation. 

Section 6. Corporations which customarily estimate their income and 
expenditure on a basis other than that of actual cash receipts and dis¬ 
bursements may, with the approval of the tax commissioner, compute 
upon a similar basis their income taxable under this act, in which case 
all the provisions of this act shall be construed to permit accounting 
upon such basis. Corporations which customarily estimate their income 
and expenditure on the basis of an established fiscal year instead of on 
that of the calendar year, may, with the approval of the tax commis¬ 
sioner and subject to such rules and regulations as he may establish, 
return their income taxable under this act, and report other information 
required by this act, on the basis of such fiscal year in lieu of that of the 
calendar year. In determining the gains or losses realized from the sale 
of capital assets, the value on January first, nineteen hundred and 
seventeen, of such property owned on that date shall be the basis of 
determination, and in case property is acquired after January first, 
nineteen hundred and seventeen, the value on the date that it is acquired 
shall be the basis of determination. 

Section 7. On or before the first day of March in every year every 
domestic business corporation shall file with the tax commissioner, under 
oath of its treasurer, a return of its net income during the previous 
calendar year, which return shall also set forth such other information 
as may be reasonably required for the enforcement of this act. Such 
return shall be made in such form as the tax commissioner shall from 
time to time prescribe, and shall be open only to the inspection of the 
tax commissioner, his deputies, clerks, and assistants, and such other 
officers of the commonwealth as may have occasion to inspect it for the 
purpose of assessing or collecting taxes. Whoever discloses to any unau¬ 
thorized person any information contained in any such return, other 
than the name and address of the corporation filing it, except in pro¬ 
ceedings to collect the tax or by proper judicial order, shall be punished 
by a fine not exceeding one thousand dollars. Returns made under this 
section shall be preserved for two years, and thereafter until the tax 
commissioner orders them to be destroyed. 

Section 8. The tax commissioner shall determine from the returns 
required by this act, and from any other information, the income of 
every domestic business corporation, and shall assess thereon the tax 
herein provided; but he shall not determine the income of any such 
corporation which has filed a return within the time prescribed by law 
to be in excess of the income shown by such return, without notifying 
such corporation and giving an opportunity to explain the apparent 
incorrectness of such return. For the purpose of verifying any return 
made pursuant to this act the tax commissioner may, within two years 


236 


MASSACHUSETTS CORPORATION TAX. 


after the date when such return was due, if he has reason to believe 
the return to be insufficient or incorrect, direct by special authorization 
a deputy or other agent to verify the return; and for the purpose of 
such verification the books and papers of the corporation shall be open 
to such examining officer and his assistants, or shall be produced for the 
purpose upon a summons which the tax commissioner, or such examining 
officer, is hereby authorized to issue. Any officer of the corporation 
which made the return may be examined by the tax commissioner, or by 
such examining officer, under oath. 

If the tax commissioner discovers from the verification of a return 
filed under this act, or otherwise, that the full amount of any tax due 
under this act has not been assessed, he may, at any time within two 
years after the first day of September of the year in which such assess¬ 
ment should have been made, assess the same, first giving notice to the 
corporation so to be assessed of his intention; and a representative of 
such corporation shall thereupon have an opportunity within ten days 
after such notification to confer with the tax commissioner as to the 
proposed assessment. After the expiration of ten days from such noti¬ 
fication the tax commissioner shall assess the amount of such tax 
remaining due to the commonwealth, and shall give notice to the cor¬ 
poration so assessed. Any tax so assessed shall be payable fourteen days 
after the date of such notice; and the provisions of this act concerning 
the abatement and collection of taxes shall be applicable to any tax so 
assessed. 

In case any corporation files a fraudulent return under this act, the 
tax commissioner shall assess upon such corporation an additional tax 
equal to the full amount of tax which he shall find to be due or to have 
been due, which additional tax shall be in addition to the other penalties 
provided by this act. 

In determining the net income of corporations taxable under this act 
the tax commissioner may use, in such manner and to such extent as he 
may deem desirable, the services of the income tax deputy and such 
deputy’s clerical and other assistants. The tax commissioner shall also 
make, from time to time, such rules and regulations, not inconsistent 
with the provisions of this act, as he may deem necessary for carrying 
out its provisions. 

Whenever the tax commissioner shall receive notice of the abatement 
of the taxes of any domestic business corporation, as provided in section 
eighty-four of Part I of chapter four hundred and ninety of the acts of 
the year nineteen hundred and nine and acts in amendment thereof and 
in addition thereto, he shall forthwith assess upon such corporation any 
portion of any tax that would have been due under this act, if the valua¬ 
tion established by such abatement had been adopted by him when mak¬ 
ing the original assessment upon the income of such corporation, which 
amount of tax shall be paid and collected as an addition to the corporate 
franchise tax next assessed and levied upon such corporation. The tax 
commissioner shall also, whenever he has reason to believe that the real 
estate or machinery of any domestic business corporation has been 
assessed in any city or town within this commonwealth for more than 


PROPOSED CORPORATION TAN. 


237 


its fair cash value, make an appraisal of such real estate and machinery; 
and the value determined by such appraisal shall be conclusive in the 
determination of the deduction authorized by paragraph ( g ) of section 
four of this act, and such corporation shall be entitled to an abatement 
under the provisions of sections seventy-two, seventy-three, seventy-four, 
seventy-five, eighty-one, and eighty-two of Part 1 of chapter four hun¬ 
dred and ninety of the acts of the year nineteen hundred and nine and 
acts in amendment thereof and in addition thereto, provided it has filed 
the list required by section seventy-three of such Part I of such chapter. 

Section 9. Except as provided by section eight of this act, the tax 
commissioner shall annually, as soon as may be after the first Monday 
of August in every year, give notice to the treasurer of each domestic 
business corporation of the amount of any tax levied upon such corpora¬ 
tion, under this act; and shall give notice to such treasurer of the date 
upon which such sum is payable and of the time within which such cor¬ 
poration may apply for a correction of such tax. Failure to receive 
such notice shall not affect the validity of such tax. 

Section 10. The penalties provided by sections fifty-eight and fifty- 
nine, and the charge for interest imposed by section sixty of Part III 
of chapter four hundred and ninety of the acts of the year nineteen 
hundred and nine and acts in amendment thereof and in addition 
thereto, for failure to comply with the provisions of such Part III 
ot such chapter, shall, so far as apt, be applicable to any domestic 
business corporation which fails to comply with the provisions of this 
act; and such penalties and interest may be recovered in the manner 
provided by section sixty-two of such Part II of such chapter. 

Section 11. Within ten days of the date upon which the notice pro¬ 
vided by section nine of this act is sent to any business corporation, 
such corporation may make application to the tax commissioner for the 
correction of any tax assessed under this act. Any party aggrieved by 
the decision of the tax commissioner upon such application may, within 
ten days after notice of such decision, appeal therefrom by filing a com¬ 
plaint with the clerk of the board of appeal provided for by section 
sixty-eight of Part III of chapter four hundred and ninety of the acts 
of the year nineteen hundred and nine. If, upon a hearing, the board 
of appeal finds that the party making an appeal is entitled to any abate¬ 
ment from any tax assessed under this act, the board shall make such 
abatement as it sees fit. The decision of the board of appeal shall be 
final and conclusive, and shall be communicated to the petitioner and the 
tax commissioner within five days after the decision is made. If the 
tax appealed from has been paid, the treasurer and receiver-general shall 
repay to the petitioner the amount of any abatement and interest from 
the time of payment, upon presentation to him by the petitioner of the 
notice of the decision of the board. 

Section 12. Any party aggrieved by the refusal of the tax commis¬ 
sioner to abate in whole or in part, under the provisions of the preceding 
section, a tax assessed upon the provisions of this act may, instead of 
pursuing the remedy provided in the preceding section, appeal from 
such refusal by filing a complaint against the tax commissioner in the 
superior court for the county in which such party has its principal place 


238 MASSACHUSETTS CORPORATION TAX. 


of business, within thirty days after the notice by the tax commissioner 
of his decision in accordance with the preceding section. An order of 
notice shall be issued by said court and served upon the tax commis¬ 
sioner within such time as the court shall direct, and the subsequent 
proceedings shall be conducted in accordance with the provisions of sec¬ 
tions seventy-seven to eighty, inclusive, of Part I of chapter four hun¬ 
dred and ninety of the acts of the year nineteen hundred and nine, and 
acts in amendment thereof and in addition thereto; but if the complain¬ 
ant was subject to taxation under this act, and did not file a return 
within the time prescribed by law, it shall not be entitled to have any 
part of its tax abated by the court, unless the court finds that it had 
good cause for its delay, or the tax commissioner had previously so 
found. If an abatement is granted, the amount thereof shall be repaid 
to the complainant by the treasurer and receiver-general, with interest 
at the rate of six per cent per annum from the time when the tax was 
paid, and costs. 

The remedies provided by sections eleven and twelve hereof shall be 
exclusive, whether or not the tax is wholly illegal. 

Section 13. Taxes levied under this act shall be payable to the treas¬ 
urer and receiver-general. Except as provided in section eight such 
taxes shall be payable within thirty days after the date of the notice 
required by section nine, but not before the twentieth of October. Such 
taxes remaining unpaid for ten days after notice given through the mail 
by the treasurer and receiver-general to the treasurer or other financial 
agent of any domestic business corporation that any such tax is due and 
unpaid shall be collected in the manner provided by section sixty-nine 
of Part III of Chapter four hundred and ninety of the acts of the year 
nineteen hundred and nine and acts in amendment thereof and in 
addition thereto for taxes levied upon corporations by such chapter, or 
under the provisions of sections sixty-one, sixty-two, and sixty-three 
of Part III of such chapter. 

Section 14. Shares in the capital stock of domestic business cor¬ 
porations shall be exempt from taxation under the provisions of Part I 
of chapter four hundred and ninety of the acts of the year nineteen 
hundred and nine and acts in amendment thereof and in addition 
thereto. 

Section IS. One-sixth of every tax paid by any domestic business 
corporation under this act shall be retained by the commonwealth. The 
remainder shall be distributed, credited, and paid to the city or town of 
the commonwealth where the business of such corporation is carried on. 
If such corporation maintains an office, store, or factory in more than 
one city or town of the commonwealth, such remainder shall be distrib¬ 
uted, credited, and paid to such cities or towns in proportion to the 
value of the tangible property of such corporation in each of such cities 
or towns on the first day of April, or such other day as the tax commis¬ 
sioner shall determine, which value shall be determined in such manner 
as the tax commissioner shall deem just: provided, that if such cor¬ 
poration does not conduct its business in Massachusetts, and does not 
own any tangible property in any city or town of the commonwealth, 
other than furniture and equipment reasonably necessary for th® use of 




PROPOSED CORPORATION TAX. 


239 


the clerk or other executive officers of such corporation, all of such tax 
shall be retained by the commonwealth. 

Section 16. If any part, section, or subdivision of this act shall be 
declared unconstitutional, the validity of the remaining parts of this act 
shall not be affected thereby. 

Section 17. This act shall take effect upon its passage. 

An Act Imposing an Excise Tax on Foreign Corporations. 

Be it enacted, etc., as follows: 

Section 1 . The provisions of Part III of chapter four hundred 
and ninety of the acts of the year nineteen hundred and nine and 
acts in amendment thereof and in addition thereto, so far as they 
apply to the taxation of foreign corporations to which the provisions 
of chapter four hundred and thirty-seven of the acts of the year nine¬ 
teen hundred and three and acts in amendment thereof and in addition 
thereto are applicable, are hereby repealed, except in so far as they 
are specifically made applicable by this act. The provisions of chap¬ 
ter seven hundred and twenty-four of the acts of the year nineteen 
hundred and fourteen are also repealed. Every such corporation, 
hereinafter called foreign business corporation, shall be subject to 
an excise tax which shall be levied by the tax commissioner in the 
manner hereinafter provided. 

Section 2. In the year nineteen hundred and eighteen and in 
each year thereafter there shall be levied on every foreign corpora¬ 
tion a tax at the rate of five per cent of the net income, as herein¬ 
after defined, received by such corporation during the previous cal¬ 
endar year from business carried on within this commonwealth. The 
net income of a foreign corporation taxable under this section shall 
be the gross income received from all sources in the previous calen¬ 
dar year less the following deductions:— 

(а) The ordinary and necessary expenses paid within the year in 
the maintenance and operation of its business and properties, includ¬ 
ing rentals or other payments required to be made as a condition 
to the continued use or possession of property in which such cor¬ 
poration has not taken or is not taking title, or in which it has no 
equity: provided, that no deduction shall be made for any expendi¬ 
ture for additions to property, permanent improvements, or better¬ 
ments. 

(б) A reasonable allowance for the depreciation and obsolescence 
of property within the year, based upon the cost of such property 
and its estimated life, and for the depletion within the year of wast¬ 
ing assets owned by the corporation: provided, that no such allow¬ 
ance shall be made unless it is actually charged off within the year; 
and provided, further, that, in the case of property acquired prior 
to January first, nineteen hundred and seventeen, such allowance 
shall be based upon the fair cash value as of that date; and provided, 
further, that when such allowance shall equal the cost of such prop¬ 
erty or wasting assets, or, in case of such property acquired prior to 
January first, nineteen hundred and seventeen, shall equal the fair 


240 


MASSACHUSETTS CORPORATION TAX. 


cash value of such property as of that date, no further allowance 
for depreciation, obsolescence, or depletion shall be made; and pro¬ 
vided, further, that with the approval of the tax commissioner such 
corporation may, in lieu of the aforesaid allowance for depreciation 
and obsolescence, be allowed to deduct actual expenses of replacement 
and extraordinary repairs, and with such approval may in any year 
defer such deductions in whole or in part to one or more subsequent 
years. 

(c) All taxes paid within the year to the United States, or to any 
other nation, or to any state, county, city, town, or other taxing 
district, except taxes due under this act and assessments for benefits. 

( d ) Interest paid within the year on indebtedness of such corpor¬ 
ation: provided, that such deduction for interest shall not exceed the 
interest upon an amount of indebtedness fifty per cent in excess of 
the amount of the issued and outstanding capital stock, surplus and 
undivided profits of such corporation; provided, however , that in the 
case of indebtedness wholly secured by property collateral, tangible 
or intangible, the subject of sale or hypothecation in the ordinary 
business of such corporation, as dealer only in such property col¬ 
lateral, or as lender of the funds thereby procured, the interest paid 
upon such indebtedness may be deducted up to an amount of such 
indebtedness not exceeding the value of such property collateral. 

( e ) Losses from the sale within the year of capital assets and 
losses sustained within the year by fire, theft or other casualty, or 
amounts paid within the year on account of claims in law or equity, 
when not compensated by insurance or otherwise: provided, that no 
deduction shall be made from any such losses or payments as have 
had the effect of decreasing the inventory used in determining the 
taxable income of such corporation. 

(/) The amount of any debts receivable arising from the conduct 
of the business of such corporation subsequent to December thirty- 
first, nineteen hundred and sixteen, determined by such corporation 
to be worthless and actually charged off within the year: provided, 
that no deduction shall be made for debts receivable as income unless 
they have been included as income in a return made under this act. 

(g) An amount equal to five per cent of the assessed value of 
the tangible property, real and personal, owned by such corporation 
within or without this commonwealth, upon which a property tax 
has been paid within the year. In case such assessed value is by 
law directed to be placed at a fractional part of the true value, the 
tax commissioner shall increase in due proportion the* deduction 
herein authorized. In case any such tangible property located outside 
of this commonwealth is actually taxed in respect of its income and 
not in respect of its capital value by the state in which it is located, 
the tax commissioner may determine its value in such manner as he 
may deem just, and may allow a deduction of an amount equal to five 
per cent of the value so determined. 

( h ) Interest or dividends which are exempt from taxation under 
section two of chapter two hundred and sixty-nine of the acts of the 


PROPOSED CORPORATION TAX. 


241 


year nineteen hundred and sixteen, and income derived from forest 
lands classified under chapter five hundred and ninety-eight of the 
acts of the year nineteen hundred and fourteen. 

Section 3. In case a foreign corporation carries on business out¬ 
side this common’vealth, the tax commissioner shall determine in the 
following manner the proportion of the net income received from 
business carried on within this commonwealth:— 

(a) In the case of a manufacturing corporation two thirds of the 
net income shall be apportioned to the state or states in which manu¬ 
facturing operations are carried on, and one third shall be appor¬ 
tioned to the state or states in which such corporation owns or rents 
premises for the sale of its products. If manufacturing operations 
are carried on in two or more states, the net income apportioned in 
respect of such operations shall be divided between such states in 
proportion to the amount of value of the products manufactured in 
each such state; and if such premises for the sale of products are 
owned or rented in two or more states, the net income apportioned 
in respect of such premises shall be divided between such states in 
proportion to the gross receipts in each such state. 

( b ) In the case of a mercantile corporation one half of the net 
income shall be apportioned to the state or states in which the 
tangible property of such corporation is located, in proportion to the 
average amount of value of such property in each such state, and 
one half shall be apportioned to the state or states in which such 
corporation owns or rents premises for the transaction of business, in 
proportion to the gross receipts of such corporation in each such state. 

(c) In the case of a corporation carrying on both mercantile and 
manufacturing business, the net income from each class of business 
shall be apportioned as nearly as may be, according to the rules 
laid down in (a) and (&). 

( d) In the case of any other kind of corporation there shall be 
deducted from the total net income of such corporation a proportion 
corresponding to the proportion which the gross receipts of such cor¬ 
poration from business carried on outside the commonwealth in places 
where such corporation owns or rents premises for the transaction of 
business bears to the total gross receipts of such corporation. 

Section 4. The excise tax provided by section two of this act to 
be paid by any foreign corporation shall in no case be less than the 
greater of the two amounts (a) or (6) herein stated:— 

(o) An amount equal to five tenths of one per cent of the fair cash 
value of the tangible personal property, other than machinery, owned 
by such corporation and located in this commonwealth: provided, that 
in determining the fair cash value of such tangible personal property 
the average amount of value for the year shall be taken to be the fair 
cash value thereof, and that such average amount of value shall be 
determined in such manner as the tax commissioner shall deem just. 

( b ) An amount equal to one tenth of one per cent of the amount 
of such corporation’s issued and outstanding capital stock employed 
vithin this commonwealth during the previous calendar year. Such 


242 


MASSACHUSETTS CORPORATION TAX. 


amount of capital stock shall be deemed to be a proportion of the 
total issued and outstanding capital stock corresponding to the pro¬ 
portion of the net income received by such corporation from busi¬ 
ness carried on within this commonwealth, as determined under the 
provisions of section three of this act. 

Section 5. After determining the amount of tax due from any 
foreign corporation under the provisions of sections two and three of 
this act, the tax commissioner shall then credit such corporation with 
a sum equal to five per cent of the dividends paid by such corporation, 
during the previous calendar year, to inhabitants of this common¬ 
wealth, and the amount then remaining due shall be the amount of 
tax to be levied upon such corporation: provided, that such tax to be 
levied shall in no case be less than the minimum tax provided by 
section four of this act. 

Section 6. Corporations which customarily estimate their income 
and expenditure on a basis other than that of actual cash receipts 
and disbursements may, with the approval of the tax commissioner, 

compute upon a similar basis their income taxable under this act, 
in which case all the provisions of this act shall be construed to per¬ 
mit accounting upon such basis. Corporations which customarily 
estimate their income and expenditure on the basis of- an established 
fiscal year instead of on that of the calendar year, may, with the 
approval of the tax commissioner and subject to such rules and 
regulations as he may establish, return their income taxable under 
this act, and report other information required by this act, on the 
basis of such fiscal year in lieu of that of the calendar year. In 
determining the gains or losses realized from the sale of capital 
assets, the value on January first, nineteen hundred and seventeen, 
of such property owned on that date shall be the basis of determina¬ 
tion, and in case property is acquired after January first, nineteen 
hundred and seventeen, the value on the date that it is acquired 

shall be the basis of determination. 

Section 7. On or before the first day of March in every year 

every foreign corporation shall file with the tax commissioner, under oath 
of its treasurer, a return of its net income during the previous 
calendar year, which return shall also set forth such other informa¬ 
tion as may be reasonably required for the enforcement of this act. 
Such return shall be made in such form as the tax commissioner 

shall from time to time prescribe, and shall be open only to the in¬ 
spection of the tax commissioner, his deputies, clerks and assistants, 
and such other officers of the commonwealth as may have occasion 
to inspect it for the purpose of assessing or collecting taxes. Who¬ 
ever discloses to any unauthorized person any information contained 
in any such return, other than the name and address of the cor¬ 
poration filing it, except in proceedings to collect the tax or by proper 
judicial order, shall be punished by a fine not exceeding one thousand 
dollars. Returns made under this section shall be preserved for 
two years, and thereafter until the tax commissioner orders them 
to be destroyed. 


PROPOSED CORPORATION TAX. 


243 


Section 8. The tax commissioner shall determine from the re¬ 

turns required by this act, and from any other information, the in¬ 
come of every foreign corporation, and shall assess thereon the tax 
herein provided; but he shall not determine the income of any such 
corporation which has filed a return within the time prescribed by 
law to be in excess of the income shown by such return, without 

notifying such corporation and giving an opportunity to explain the 
apparent incorrectness of such return. For the purpose of verifying 
any return made pursuant to this act the tax commissioner may, 
within two years after the date when such return was due, if he has 
reason to believe the return to be insufficient or incorrect, direct by 
special authorization a deputy or other agent to verify the return; 
and for the purpose of such verification the books and papers of 

the corporation shall be open to such examining officer and his as¬ 
sistants, or shall be produced for the purpose upon a summons 

which the tax commissioner, or such examining officer, is hereby 
authorized to issue. Any officer of the corporation which made the 
return may be examined by the tax commissioner or by such exam¬ 
ining officer, under oath. 

If the tax commissioner discovers from the verification of a return 
filed under this act, or otherwise, that the full amount of any tax 
due under this act has not been assessed, he may, at any time within 
two years after the first day of September of the year in which such 
assessment should have been made, assess the same, first giving notice 
to the corporation so to be assessed of his intention; and a repre¬ 
sentative of such corporation shall thereupon have an opportunity 

within ten days after such notification to confer with the tax com¬ 
missioner as to the proposed assessment. After the expiration of 
ten days from such notification the tax commissioner shall assess the 
amount of such tax remaining due to the commonwealth, and shall 
give notice to the corporation so assessed. Any tax so assessed shall 
be payable fourteen days after the date of such notice; and the pro¬ 
visions of this act concerning the abatement and collection of taxes 

shall be applicable to any tax so assessed. 

In case any corporation files a fraudulent return under this act, 
the tax commissioner shall assess upon such corporation an additional 
tax equal to the full amount of tax which he shall find to be due or 

to have been due, which additional tax shall be in addition to the 

other penalties provided by this act. 

In determining the net income of corporations taxable under this 
act the tax commissioner may use, in such manner and to such ex¬ 
tent as he may deem desirable, the services of the income tax deputy 

and such deputy’s clerical and other assistants. The tax commis¬ 
sioner shall also make, from time to time, such rules and regulations, 
not inconsistent with the provisions of this act, as he may deem 
necessary for carrying out its provisions. 

Whenever an abatement is finally made to any foreign corporation 
upon any tax assessed by the assessors of any city or town upon 
property of such corporation subject to taxation in such city or 


244 


MASSACHUSETTS CORPORATION TAX. 


town, such assessor shall forthwith notify the tax commissioner, in 
such form as he may prescribe, concerning such abatement; and the 
tax commissioner upon receipt of such notice shall forthwith assess 
upon such corporation any portion of any tax that would have been 
due under this act, if the valuation established by such abatement 
had been adopted by him when making the original assessment upon 
the income of such corporation, which amount of tax shall be paid 
and collected as an addition to the corporate franchise tax next 
assessed and levied upon such corporation. The tax commissioner 
shall also, whenever he has reason to believe that the real estate or 
machinery of any foreign corporation has been assessed in any city 
or town within this commonwealth for more than its fair cash value, 
make an appraisal of such real estate and machinery; and the value 
determined by such appraisal shall be conclusive in the determina¬ 
tion of the deduction authorized by paragraph ( g ) of section four of 
this act, and such corporation shall be entitled to an abatement under 
the provisions of sections seventy-two, seventy-four, seventy-five, 
eighty-one, and eighty-two of Part I of chapter four hundred and 
ninety of the acts of the year nineteen hundred and nine and acts 
in amendment thereof and in addition thereto: provided, that it has 
filed the list required by section seventy-three of such Part I of 
such chapter. 

Section 9. Except as provided by section eight of this act, the 

tax commissioner shall annually, as soon as may be after the first 
Monday of August in every year, give notice to the treasurer or 
other agent of each foreign corporation of the amount of any tax 

levied upon such corporation, under this act; and shall give notice 
to such treasurer or agent of the date upon which such sum is pay¬ 
able and of the time within which such corporation may apply for a 
correction of such tax. Failure to receive such notice shall not 

affect the validity of such tax. 

Section 10. The penalties provided by sections fifty-eight and 

fifty-nine, and the charge for interest imposed by section sixty of 
Part III of chapter four hundred and ninety of the acts of the 

year nineteen hundred and nine and acts in amendment thereof and 
in addition thereto, for failure to comply with the provisions of such 
Part III of such chapter, shall, so far as apt, be applicable to any 
foreign corporation which fails to comply with the provisions of 
this act; and such penalties and interest may be recovered in the 

manner provided by section sixty-two of such Part II of such 

chapter. 

Section 11. Within ten days of the date upon which the notice 
provided by section nine of this act is sent to any foreign corpora¬ 
tion, such corporation may make application to the tax commissioner 
for the correction of any tax assessed under this act. Any party 

aggrieved by the deoision of the tax commissioner upon such appli¬ 
cation may, within ten days after notice of such decision, appeal 
therefrom by filing a complaint with the clerk of the board of appeal 
provided for by section sixty-eight of Part III of chapter four hun- 


PROPOSED CORPORATION TAX. 


245 


dred and ninety of the acts of the year nineteen hundred and nine. 
If, upon a hearing, the board of appeal finds that the party making 
an appeal is entitled to any abatement from any tax assessed under 
this act, the board shall make such abatement as it sees fit. The 
decisions of the board of appeal shall be final and conclusive, and 
shall be communicated to the petitioner and the tax commissioner 
within five days after the decision is made. If a tax appealed from 
has been paid the treasurer and receiver-general shall repa'y to the 
petitioner the amount of any abatement and interest from the time 
of payment upon presentation to him by the petitioner of the notice 
of the decision of the board. 

Section 12. Any party aggrieved by the refusal of the tax com¬ 
missioner to abate in whole or in part, under the provisions of the 
preceding section, a tax assessed upon the provisions of this act may, 
instead of pursuing the remedy provided in the preceding section, 
appeal from such refusal by filing a complaint against the tax com¬ 
missioner in the superior court for the county in which such party 
has its principal place of business within this commonwealth, within 
thirty days after the notice by the tax commissioner of his decision in 
accordance with the preceding section. An order or notice shall be 
issued by said court and served upon the tax commissioner within 
such time as the court shall direct and the subsequent proceedings 
shall be conducted in accordance with the provisions of sections 
seventy-seven to eighty, inclusive, of Part I of chapter four hundred 
and ninety of the acts of the year nineteen hundred and nine and 
acts in amendment thereof and in addition thereto; but if the com¬ 
plainant was subject to taxation under this act and did not file a 
return within the time prescribed by law it shall not be entitled to 
have any part of its tax abated by the court, unless the court finds 
that it has good cause for its delay, or the tax commissioner had 
previously so found. If an abatement is granted, the amount thereof 
shall be repaid to the complainant by the treasurer and receiver- 
general, with interest at the rate of six per cent per annum from the 
time the tax was paid, and costs. The remedies provided by sections 
eleven and twelve hereafter shall be exclusive, whether or not the 
tax is wholly illegal. 

Section 13. Taxes levied under this act shall be payable to the 
treasurer and receiver-general. Except as provided in section eight 
such taxes shall be payable within thirty days after the date of the 
notice required by section nine, but not before the twelfth of October. 
Such taxes remaining unpaid for ten days after notice given through 
the mail by the treasurer and receiver-general to the treasurer or 
other financial agent of any foreign corporation that any such tax 
is due and unpaid shall be collected in the manner provided by sec¬ 
tion sixty-nine of Part III of chapter four hundred and ninety of the 
acts of the year nineteen hundred and nine and acts in amendment 
thereof and in addition thereto for taxes levied upon corporations 
by such chapter, or under the provisions of sections sixty-one, sixty- 
two and sixty-three of Part III of such chapter. 


246 


MASSACHUSETTS CORPORATION TAX. 


Section 14. The tangible personal property, other than machinery, 
of foreign corporations shall be exempt from taxation under the 
provisions of Part I of chapter four hundred and ninety of the acts 
of the year nineteen hundred and nine, and acts in amendment there¬ 
of and in addition thereto. So much of section seventy-one of chapter 
four hundred and thirty-seven of the acts of the year nineteen hun¬ 
dred and three, and all acts in amendment thereof and in addition 
thereto, as relates to the taxation of merchandise owned by foreign 
corporations and situated in this commonwealth is hereby repealed. 
So much of section twenty-three of Part I of chapter four hundred 
and ninety of the acts of the year nineteen hundred and nine and 
acts in amendment thereof and in addition thereto as relates to the 
taxation of the merchandise of foreign corporations is hereby re¬ 

pealed. Chapter one hundred and sixty-seven of the general acts of 
the year nineteen hundred and fifteen, as amended by chapter eighty- 
three of the acts of the year nineteen hundred and sixteen, and by 
chapter eighty-nine of the acts of the year nineteen hundred and 
seventeen, is hereby repealed. 

Section IS. One sixth of every tax paid by any foreign corpora¬ 
tion under this act shall be retained by the commonwealth. The 

remainder shall be distributed, credited, and paid to the city 

or town of the commonwealth where the business of such cor¬ 

poration is carried on. If such corporation maintains an office, store, 
or factory in more than one city or town of the commonwealth, such 
remainder shall be distributed, credited and paid to such cities or 
towns in proportion to the value of the tangible property of such 
corporation in each of such cities or towns on the first day of April, 
or such other day as the tax commissioner shall determine, which 
value shall be determined in such manner as the tax commissioner 

shall deem just: provided, that if such corporation does not own any 

tangible property in this commonwealth, other than furniture or office 
equipment and supplies, all of such tax shall be retained by the 
commonwealth. 

Section 16. If any part, section, or subdivision of this act shall 
be declared unconstitutional the validity of the remaining parts of 

this act shall not be affected thereby. 

Section 17. This act shall take effect upon its passage. 


MASSACHUSETTS INHERITANCE TAX. 


247 


(4) MASSACHUSETTS INHERITANCE TAX. 

BRIEF The first Inheritance Tax Law in Mass- 
HISTORY. achusetts was passed in 1891 and re¬ 
lated solely to estates passing to col¬ 
lateral heirs. 

In 1897 the law was made applicable to estates, 
passing to direct as well as to collateral heirs. 

The Inheritance Acts were codified in 1909 and 
again in 1916, the latter codification (Acts of 1916, 
Chapter 268) being the law at the present time. 

THE PRESENT All property within the juris- 
LAW. diction of the Commonwealth 

which passes by will, intestate succession or by 
transfer other than for full consideration made or 
intended to take effect after the death of the gran¬ 
tor except to or for the use of charitable or other 
corporations the property of which is exempt from 
taxation, is subject to taxation as follows: 


248 


MASSACHUSETTS INHERITANCE TAX. 


WHERE DECEDENT DIED AFTER 
MAY 26, 1916. 


CLASS A. 


If property or interest there¬ 
in passes, or beneficial in¬ 
terest accrues to or for 
benefit of 

1. Husband, wife, parent, 
child, adopted child or 
adoptive parent. 

2. Grandchild. 


1. Value under 

2. $ 10,000 to 

3. 25,000 to 

4. 50,000 to 

5. 250,000 to 

6. Over 


No 

$ 10,000 tax 
25,000 1% 
50,000 2% 
250,000 4% 
1,000,000 5% 
1,000,000 6% 


1. $ 1,000 to $ 25,000 1% 
Otherwise as above. 


CLASS B. 


Lineal ancestor, except par¬ 

1. 

$ 1,000 

to 

$ $10,000 

1% 

ent ; lineal descendant ex¬ 

2. 

10,000 

to 

25,000 

2% 

cept child or grandchild; 

3. 

25,000 

to 

50,000 

4% 

wife or widow of son; 

4. 

50.000 

to 

250 000 

5% 

husband of daughter; lineal 

5. 

250,000 

to 

1,000,000 

6% 

descendant of an adopted 

6. 

Over 


1,000,000 

7% 

child; or lineal ancestor of 






adoptive parent. 






CLASS 

c. 




Brother, sister, stepchild, step¬ 

1. 

$ 1.000 

to 

$ 10,000 

3% 

parent, half brother, half 

2. 

10,000 

to 

25,000 

5% 

sister, nephew or niece. 

3. 

25,000 

to 

50,000 

7% 


4. 

50.000 

to 

250 000 

8% 


5. 

250,000 

to 

1,000,000 

9% 


6. 

Over 


1,000,000 10% 

CLASS 

D. 




All others. 

1. 

$ 1,000 

to 

$ 10.000 

5% 


2. 

10.000 

to 

25,000 

6% 


3. 

25,000 

to 

50,000 

7% 


4. 

50,000 

to 

250,000 

8% 


5. 

250,000 

to 

1,000,000 

9% 


6. 

Over 


1,000,000 10% 



MASSACHUSETTS INHERITANCE TAX. 


249 


WHERE DECEDENT DIED PRIOR TO 
MAY 26, 1916. 


CLASS A. 


1. Husband, wife, father, 
mother, child, adopted 
child, adoptive parent. 


2. Lineal ancestor except 
parents, lineal descendant 
except child, lineal de¬ 
scendant of adopted child,, 
lineal ancestor of adoptive 
parent, wife or widow of 
son, husband or daughter. 

CLASS B. 


Brother, sister, 

nephew, or 

1. $ 1,000 to 

$ 10,000 

2% 

niece (also half brother or 

2. 10 000 to 

25,000 

3% 

sister). 


3. 25,000 to 

50,000 

5% 



4. 50,000 to 

250 000 

6% 



5. 250,000 to 

1,000,000 

7% 



6. Over 

1,000,000 

8 % 


CLASS C. 



All others. 


1. $ 1,000 to 

$ 50,000 

5% 



2. 50,000 to 

250,000 

6% 



3. 250,000 to 

1,000,000 

6% 



4. Over 

1,000,000 

7% 


1. Under $10,000 no tax 

2. $ 10,000 to $ 50,000 1% 

3. 50,000 to 250,000 2% 

4. 250,000 to 1,000,000 3% 

5. Over 1,000,000 4% 

1. $ 1,000 to $ 10,000 1% 

Otherwise as above. 


EXEMPTIONS. The so-called exemption of $10,- 
000 or $1,000 refers to the share 
to each individual beneficiary and not to the estate 
as a whole. 

If the share exceeds $10,000 or $1,000 as the case 
may be, the whole share and not merely the excess 



250 


MASSACHUSETTS INHERITANCE TAX. 


is subject to the tax except that no tax is imposed 
which will reduce the amount of the share below 
the exempted amount. 

Fiduciaries and grantees are liable for the taxes 
until the same have been paid. 

Taxes are payable at the expiration of one year 
after the date of giving bond or one year after the 
date when the right of possession accrues. No 
final account will be allowed until taxes are paid. 

TAX RETURNS REQUIRED. 

Executors, administrators and trustees are re¬ 
quired, within three months after their appoint¬ 
ment, to file an inventory in the Probate Court or 
with the Tax Commissioner. 

Final accounts will not be allowed until evi¬ 
dence is filed in the Probate Court that the tax, if 
any, has been paid. 


V 


INDEX. 


United States 


ABATEMENTS 108 

ACCIDENT INSURANCE 29 

ACCRUAL BASIS 82 

Individual 82 

Partnership 

ADMINISTRATORS—See “Fiduciaries” 29 

ADMISSIONS AND DUES, “WAR TAX” 178 

AGENTS, RETURN BY 59 

ALIENS, NON-RESIDENT 49 

ALIMONY 29,72 

ALPHABETICAL SUMMARY 

Federal Excess Profits Tax 119 

Federal Income Tax 29 

Mass. Income Tax 

ANNUITIES 29 


APPEALS 

Mass. Corporation Tax 
Mass. Income Tax 
APRIL FIRST 
Mass. Local Tax 
Mass. Corporation Tax 


APRIL, TAX SUGGESTIONS FOR 9 

ASSESSMENTS 81 

AUGUST, TAX SUGGESTIONS FOR 11 

AUTOMOBILES, “WAR TAX” 178 

BAD DEBTS 86 

BANK STOCK 71 

BENEFICIARIES 29 

BLANK FORMS 30 

BOATS, “WAR TAX” 178 

BONDS 30 

Exempt 40 

Liberty 30,69 

State and Municipal 40 

Tax Free Covenant 57,103 


Massachusetts 

231 

195 

202 

202 

202 

195 


196 


195 

196 

231 

196 


224 

225 
9 

11 

196 

197 

197 

198 
205 

205 



GENERAL INDEX 


it 



United States 

Massachusetts 

BONUS 

67,71 


BROKERS 

168 


BUILDING AND LOAN ASSOCIATIONS 

71 


BUSINESS EXPENSE 

35 

188 

CALENDAR FOR TAXPAYERS 

CAPITAL 

8 

8 

Invested 

116,121,122 


Nominal 

115,121,124,167 


CAPITAL STOCK, STAMP TAX 

CAPITAL STOCK TAX—See “Federal 

178 


Capital Stock Tax” 

172 


CAPITALIZING INDEBTEDNESS 

12 


CAPITALIZING SURPLUS 

CASH AND RECEIVABLES OUT OF 

74,12 


STATE 


226, 229 

CHARITY, CONTRIBUTIONS TO 

91 


CHECKS, “WAR TAX” 

178 


CHILDREN 

CLERGYMEN—See “Professions” 

40 

199 

CLUBS 

30 

190,199 

Annual Dues 

178 


Federal Income Tax 

30 


Initiation Fees 

178 


War Tax 

178 


COLLATERAL 


200 

COMMISSION BASIS 

80 


COMMISSIONS 

43 

200 

CONTRACTS, INCOMPLETED 
CONSERVATORS—See “Fiduciaries” 

65 


CONTRIBUTIONS TO CHARITY 

91 


CONVEYANCES 

178 


CO-OPERATIVE BANKS 

CORPORATIONS 


202 

Assessments 

81 


Credits 

33 


Deductions 

76,33, 32 


Depreciation 

32 


Dissolved 

37 


Dividends 

38, 72 

203 

Exempt 

16,31 

189 




GENERAL INDEX 


Hi 



United States 

Massachusetts 

Federal Capital Stock Tax 

172 


Federal Excess Profits Tax 

114,117 


Federal Income Tax 

31 


Federal Undistributed Profits Tax 

111 


Foreign 


190,221 

Fiscal Year 

40, 60 

Holding Companies 

33 


Income Taxable 

32 


Income Non-taxable 

32 


Information at Source 

33,105 

190,200, 20^ 

Interest Deductions 

46 

Mass. Corporation Tax 


22! 

Mass. Income Tax 


is; 

Mass. Local Tax 


22' 

New Corporations 

34 


Reorganizations 

153 


Returns by 118,130,6,176,22,113 

189, 200, < 
( 

Schedule of Taxes 

6 

Stock, Returned to 

158 


COUPONS 

34 


Ownership Certificates 

34 


Tax Free Covenant 

57,103 


CREDITS 

33 


CUSTOM DUTIES 

35 

20] 

CUSTOM HOUSE BROKERS 

180 


DAMAGES 

35 


Personal Injuries 

35 


DECEMBER, TAX SUGGESTIONS FOR 

11 

11 

DEDUCTIONS ALLOWED (FEDERAL 

EXCESS PROFITS TAX) 

120,137,116,132 


Variable (7% to 9%) 

116,120 


Fixed ($3000-$6000) 

116,120 


DEDUCTIONS ALLOWED (FEDERAL 

INCOME TAX) 

35, 76 


Bad Debts 

29, 86 


Business Expense 

76, 77 


Depreciation 

37,86, 89 


Excess Profits Tax 

36 


Family Deduction 

39 


Insurance Premiums 

80 


Interest 

40 


Losses 

36,84 


Taxes 

36 





IV 


GENERAL INDEX 


United States Massachusetts 

DEDUCTIONS ALLOWED (MASS. IN- 


COME TAX) 

187,200 

Bad Debts, Business 

Bonus 

187,200 

Depreciation 

Excess Profits Tax, Accrual Basis 

187,200 

Family Deduction 

187, 200 

Five per cent, of Assessed Valuation 

187,200 

Insurance on Partner’s Life 

187 

Interest 

187,200 

Losses 

187, 200 

Taxes 

Two Thousand Dollars 

187,200 


DEDUCTIONS NOT ALLOWED (FED¬ 
ERAL INCOME TAX) 

Cost New Buildings 
Federal Income and Excess Profits 
Taxes 

Insured Losses 
Living Expenses 
Personal Expenses 
Taxes against Local Benefits 
DEDUCTIONS NOT ALLOWED (MASS. 


INCOME TAX) 


189, 200 

Fiduciaries’ Expenses 


189 

Interest on Personal Indebtedness 


189,200 

Living Expenses 


189 

Mortgage Interest on Taxpayer’s House 


189, 200 

Permanent Improvements 


200 

Personal Expenses 


189, 200 

Taxes on Taxpayer’s House 


189, 200 

DEEDS AND CONVEYANCES 

178 


Federal Stamp Tax 

178 


DEPLETION 

90 


DEPRECIATION 

37,86, 87 

203 

Buildings 

87 


Machinery 

88 


Patents 

89 


DIRECTORS’ FEES 

37 

203 

DISSOLVED CORPORATIONS 

37 


DIVIDENDS 


203 

Allocation of 

38 


Federal Income Tax 

38 



36, 78, 79 
36, 78 

36 
36 
36, 78 
36, 78 
37,83 






GENERAL INDEX 


V 



United States 

Massachusetts 

Liberty Bonds 

30, 69 


Life Insurance 

38,76 

209 

Mass. Income Tax 

203 

Stock Dividends 

38 

203 

DUES, “WAR TAX” 

178 


EARNINGS, UNDISTRIBUTED 

111 


EMPLOYEES’ LIST 


204 

ENTERTAINMENT EXPENSE 

79 


ESTATE TAX—See “Federal Estate Tax” 

174 


EXAMINATION OF BOOKS 

EXCESS PROFITS TAX—See “Federal 

39 


Excess Profits Tax” 

114 


EXECUTORS 

40 

204 

EXEMPTIONS (FEDERAL INCOME TAX) 

39, 62 


Family Exemptions 

39, 40 


Gifts and Legacies 

39, 62 


Personal Exemption 

39, 40 


Proceeds Life Insurance Policy 

39, 62 


Rights Unsold 

54 


Salaries of Federal and State Employees 
United States, State and Municipal 

62 


Bonds 

62 


EXEMPTIONS (MASS. INCOME TAX) 


205 

Dividends Mass. Corporations 

Dividends Partnerships with Transfer¬ 


205 

able Shares 


205 

Family Exemption 


205 

Interest, Savings Bank 


205 

Interest, Co-operative Bank 

Interest, Trust Company, Savings De¬ 


205 

partment 


205 

Interest, Mortgage 


205 

Rent 


205 

Three Hundred Dollar Exemption 

Two Thousand Dollar Exemption, Busi¬ 


205 

ness Income 


205 

ESTATES, HOW TAXED 

97 


FARM, GENTLEMAN’S 

85 


FEBRUARY, TAX SUGGESTIONS FOR 

8 

8 

FEDERAL CAPITAL STOCK TAX 

172 


Corporations 

172 


History of 

172 






vi 


GENERAL INDEX 


United States 


Holding Companies 


How Figured 

173 

Inactive Corporations 

172 

Returns Required 

173 

Returns, When and Where Filed 

173 

Tax, How Figured 

173 

Who are Subject 

172 

Who are not Subject 

172 

FEDERAL ESTATE TAX 

174 

Gross Estate 

174 

History of 

174 

How Figured 

174 

Mass. Inheritance Tax 

177 

Net Estate 

174 

Notices Required 

176 

Penalties 

177 

Returns Required 

176 

Soldiers and Sailors 

174 

Tax Rate 

174 

Who are Subject 

174 

FEDERAL EXCESS PROFITS TAX 

114 

Adjustments 

156 

Alphabetical Summary 

119 

Appeals 

117 

Assessments and Collections 

171 

Average Monthly 

117,151 

Brokers 

168 

Charity 

148 

Computation of Deduction 

117 

Corporations 

114,119 

Affiliated 

169 

Exempt 

115 

Invested Capital 

122 

Returns 

118,130 

Deductions 

116,120 132,137 

Fixed 

116 

Variable 

116 

Definitions 

128 

Eight Per Cent. Tax 

124 

Exemptions 

131 

Fiscal Year 

118,130 

Formula 

116 

Good Will 

159 

History 

114 

Individuals 

114,121 

Exempt 

115 


Massachusetts 




GENERAL INDEX 


Vll 


Returns 

United States 

118 

Intangible Property 

153,165 

Interest 

145 

Invested Capital 

116,121,122,150 

Corporations 

122,155 

How Computed 

166 

How Increase 

123 

Individuals 

122,166 

Partnerships 

122,155 

Securities 

151 

Married Woman 

169 

Monthly Average 

117,151 

Net Income, Corporations 

123,142 

Net Income, Individuals 

123,146,164 

Net Income, Partnership 

123,144 

New Business 

120 

Nominal Capital 

115,121,124,167 

Old Business 

120,138 

Partnerships 

114,120,125 

Exempt 

115 

Invested Capital 

122 

Returns 

118 

Patents 

159 

Pre-war 

124,125,129 

Low Profits 

120,139 

Profits During Tax Year 

165 

Professions 

115,125 

Reconstruction 

162 

Reorganization 

153 

Returns 

118,126,130 

Corporations 

118,126,130 

Individuals 

118,126,130 

Partnerships 

118,126,130 

When Due 

118 

Salaries 

124,126 

Over $6000 

115,126 

To Individuals 

148 

To Partners 

144 

Securities 

123 

Surplus 

161 

Tangible Property 

153 

Tax 

115 

How Figured 

115,131 

When Payable 

119 

Who are Subject 

114 


Massachusetts 






Vlll GENERAL INDEX 

United States 


Who are not Subject 

115,150 

Twenty Per Cent. Limitation 

159 

EDERAL INCOME TAX 

14 

Accrual Basis 

82 

Accident Insurance 

29 

Alimony 

29, 72 

Alphabetical Summary 

29 

Annuities 

29 

Automobiles 

29 

Bad Debts 

29,86 

Bank Interest 

46 

Bank Stock 

71 

Beneficiaries 

29 

Blanks 

30 

Bonds 

30 

Bonus 

30,67,71 

Changes in Law 

15 

Charity 

30,91 

Clubs 

30 

Commissions 

31 

Corporations 

31 

Deductions 

32, 33, 76 

Depreciation 

32 

Dissolved 

37 

Dividends 

38, 72 

Exempt 

16, 31 

Fiscal Year 

40, 60 

Holding Companies 

33 

Income Taxable 

32 

Information at Source 

33,105 

Interest Deduction 

46 

New Corporations 

34 

Returns 

22 

Stock Dividends 

38, 39 

Tax, How Figured 

17 

Coupons 

34 

Credits 

33 

Custom Duties 

35 

Damages 

35 

Deductions 

32, 33, 76, 78, 79 

Depreciation 

37, 86, 89 

Directors’ Fees 

37 

Dividends 

38, 72 

Estates, How Taxed 

97 

Examination of Books 

39 

Excess Profits Tax 

39 


Massachusetts 




GENERAL INDEX 


ix 


Exemptions 
Fiduciaries 
Exemptions 
Fiscal Year 
Forms 
Gifts 

Head of Family 
History 

Husband and Wife 
Income Returned 
Income Tax Primer 
Income Not Returned 
Individuals 

Income Tax in Dollars 
Income Tax in Per Cent. 
Information at Source 
Tax Returns 
Tax Schedule 
Tax, How Figured 
Information at Source 
Information Required 
Instalments 
Insurance 
Interest 
Inventory 
Judges 

Landlord and Tenant 
Late Returns 
Legacies 
Liberty Bonds 
Limited Partnership 
Living Quarters 
Losses 

Masonic Organizations 
Mortgage Interest 
Non Residents 
Normal Tax 
Partnerships 

Information at Source 
Limited 
Penalties 
Pensions 

Primer, Income Tax 
Professions 
Deductions 
Fees 

Profits and Losses 


United States Massachusetts 

39, 60, 62 

40,94,98 206 

41 
40, 60 
30 
41 
41,61 
14 

39,42, 59 

42, 63 
58 

43, 62 
15,16 

21 

19 

22 

22 

6 6 
16 
33, 44 
24 
68 

40, 45, 70 
40,45, 83 

46 

47 
47, 67 
47, 58 

47 
30, 69 

48 
55 
48 
48 

48 

49 

16,17,49 
17, 49,92 
44 
48 
50, 59 
50, 71 
58 
51,81 
51 
51 
51,66 


X 


GENERAL INDEX 


United States 


Public Inspection 

52 

Questions and Answers 

58 

Real Estate 

52 

Rent 

52 

Repairs 

53 

Reorganizations 

53 

Returns 

22, 53 

Corporation 

22, 28, 54 

Individual 

22,24,25,53 

Fiduciary 

22, 54 

Late 


Partnership 

22,53 

When Filed 

23, 54 

Where Filed 

23, 54 

Rights 

54, 72 

Royalties 

54 

Salaries 

55 

Bonus 

55 

Judges’ 

55 

Living Quarters 

55 

Savings Banks 

55 

Surtax 

16, 20 

Taxes 

56 

Corporations 

31 

Individuals 

15,16 

Partnerships 

49 

Payment of 

50 

Returns 

22, 53 

Tax Free Covenant Bonds 

56,103 

Voting Trust 

56 

Who are Subject 

15 

Withholding at Source 

57,101 

EDERAL MISCELLANEOUS WAR TAXES 

178 

Admissions and Dues 

178 

Automobiles 

178 

Beverages 

180 

Boats 

178 

brokers 

180 

Jameras 

178 

Chewing Gum 

178 

Cigars and Tobacco 

180 

Circuses 

180 

Coffee 

180 

Dues 

178 

Express 

180 

Floor Tax 

179 


Massachusetts 



GENERAL INDEX 



United States 

Freight 

180 

Games 

180 

Insurance 

178 

J ewelry 

180 

Jobbers 

178 

Liquors 

180 

Manufacturers 

178 

Medicinal Preparations 

180 

Moving Pictures 

180 

Munitions 

180 

Parlor Car 

180 

Passenger Tickets 

180 

Perfume 

180 

Piano-Players 

180 

Playing Cards 

180 

Postal Rates 

180 

Sleeping Car 

180 

Sporting Goods 

180 

Sugar 

180 

Telephone and Telegraph 

180 

Theatres 

180 

Tickets, Passenger 

180 

Tobacco 

180 

Toilet Articles 

180 

Toys 

180 

FEDERAL STAMP TAX 

178 

Checks 

178 

Conveyances 

178 

Custom House Entry 

178 

Deeds 

178 

Parcel Post 

178 

Playing Cards 

178 

Power of Attorney 

178 

Promissory Notes 

178 

Proxies 

178 

Stocks, Original Issue 

178 

Stock Transfers 

178 

FEDERAL UNDISTRIRUTED PROFITS 


TAX 

111 

Corporations 

111 

History of 

111 

How Avoid 

111 

How Figured 

111 

Investment in Business 

112 

Liberty Bonds 

112 

1 1 o 

Penalties 

11 1 


xi 

Massachusetts 




GENERAL INDEX 


xii 



United States 

Massachusetts 

Returns Required 

113 


Tax, How Figured 

111 


Who Are Subject 

111 


FEES—See “Salaries” 

FIDUCIARIES 

40,94,100 

204, 206 

Federal Income Tax 

94,99 


Mass. Income Tax 


204, 206 

Returns by 

96,98 

206 

When Fiduciary Pays Tax 

96 

206 

FIRE LOSSES—See “Insurance” 

FISCAL YEAR 

40, 60 


Corporations 

40, 60 


Partnerships 

41 


Returns 

41 


FLOOR TAX 

179 


FRATERNAL ORDERS 

31 

206,211 

GIFTS 

41 

206 

GUARDIANS—See “Fiduciaries” 

HEAD OF A FAMILY 

61 


HUSBAND AND WIFE 

42, 59, 60 

207 

Liberty Bonds 

30, 69 


Returns 

42 

207 

INCOME TAX—See “Federal Income Tax” 

INCOME TAX—See “Mass. Income Tax” 

INCOME TAXABLE (Federal Income Tax) 

63, 42 


Annuities 

29 


Business Income 

42 


Corporations 

31 


Dividends 

38 


Individuals 

42 


Interest 

45 


Partnerships 

49 


Professional Income 

42, 51 


Rent 

52 


Royalties 

52 


Salaries 

55 


INCOME TAXABLE (Mass. Income Tax) 


185,207 

Annuities 


207 

Business Income 


208 

Dividends 


207 

Foreign Fiduciary 


208 




GENERAL INDEX 


United States 

Interest 

Profits 

Professional Income 
Salaries 

INCOME NON-TAXABLE (Federal In¬ 


come Tax) 62,43 

Liberty Bonds 44 

Municipal Bonds 44 

State Bonds 44 

United States Bonds 44 


INCOME NON-TAXABLE (Mass. Income 
Tax) 

Dividends, Mass. Corporations 
Gifts and Legacies 
Interest, Savings Bank 
Interest, Co-operative Bank 
Interest, Trust Company, Savings De¬ 
partment 

Interest on United States, State and 
Municipal Bonds 
Mortgage Interest 
Rents 

Salaries from U. S. 

INDIVIDUALS 


Federal Income Tax 15,16 

Federal Income Tax in Dollars and Per 
Cent. 19,21 

Federal Excess Profits Tax 114,121 

Information at Source 105 

Mass. Income Tax 

Returns, Schedule of 6 

Taxes, Schedule of 6 

INFORMATION AT THE SOURCE 44,106 


INHERITANCE TAX—See “Federal Estate 
Tax” 

INHERITANCE TAX—See “Mass. Inherit¬ 
ance Tax” 

INSTALMENT CONTRACT 68 

INSURANCE 45 

Accident, Proceeds of 70 

Dividends on Policy 76 

Fire Insurance on Home 45 

Life, Proceeds of 70,76,99 

On Lives of Officers and Employees 80 


xiii 


Massachusetts 

207, 208 
208,216 
208,215 

208, 220 


186,208 
186, 208 
186, 206 
187,209 
187,209 

187,209 

209 
187,202 
187,217 
187 


181,189,191 
6 
6 


209 

195 

209 

209 

209 






XIV 


GENERAL INDEX 



United States 

Massachusetts 

On Lives of Partners 

80 


Return Premiums on 

80 

209 

War Tax on Premiums 

178 


INTEREST 

83 

209 

Ronds 

40,46, 56,103 

198 

Co-operative Rank 

46 

202 

Liberty Bonds 

30, 69 


Mortgage 

46 

212 

Savings Bank 

46 

202 

Trust Company 

46 

202 

INVENTORY 

46 

210 

INVESTED CAPITAL 

116,121,150,151 


JANUARY, TAX SUGGESTIONS FOR 

8 

8 

JEWELRY, WAR TAX 

180 


JOBBERS, WAR TAX 

178 


JUDGES’ SALARIES 

55 

215 

JUDGMENTS PAID 

84 


JULY, TAX SUGGESTIONS FOR 

11 

11 

JUNE, TAX SUGGESTIONS FOR 

10 

10 

LANDLORD AND TENANT 

67 

216 

LAWYERS—See “Professions” 

LEGACIES—See “Gifts” 

LIBERTY BONDS 

30, 69 


LIFE INSURANCE—See “Insurance” 

LIMITED PARTNERSHIP—See “Partnership” 


LIQUORS 

180 


LIVING EXPENSES 

48, 78 

210 

LIVING QUARTERS 

55 


LIST OF EMPLOYEES ($800) 

108 


LIST OF EMPLOYEES ($1800) 


190,200, 204 

LIST OF INTEREST PAYMENTS 


190 

LIST OF STOCKHOLDERS 


190,200 

LOCAL TAX—See “Mass. Local Tax” 

LOSSES—See “Profits and Losses” 

LOSSES IN TRADE 

48 

211 

MACHINERY DEPRECIATION 

88 


MARCH FIRST, RETURNS DUE 

6' 

6 

MARCH, TAX SUGGESTIONS FOR 

8 

8 

MARGIN 


211 

MARRIED MAN—See “Husband and Wife” 
MASONIC ORGANIZATIONS 

16 

211 


GENERAL INDEX 


XV 


United States 

Massachusetts 

MASSACHUSETTS CORPORATION TAX 

225 

Deductions 

226 

Foreign Corporations 

226 

Formulae 

229 

How Figured 

228 

Income Tax, Proposed 

231,232 

Maximum Tax 

226 

Minimum Tax 

227 

Net Asset Tax 

226 

New Tax Law 

231, 232 

Out-of-the-State Property 

226,229 

Present Law 

225 

Returns Required 

230 

Tax, When Payable 

231 

Transfer Tax 

226 

MASSACHUSETTS INCOME TAX 

181 

Abatements 

195 

Accident Insurance 

195 

Administrators 

195 

Alimony 

196 

Alphabetical Summary 

195 

Annuities 

196 

Appeals 

196 

Assignees 

196 

Automobiles 

196 

Bad Debts 

196 

Banks 

197, 202 

Beneficiaries 

197 

Betterments 

197 

Blanks 

197 

Bonds 

198 

Capital Assets 

198 

Charities 

198 

Children 

199 

Churches 

199 

Clubs 

190,199 

Collateral 

200 

Commissions 

200 

Corporations 

183.189, 200 

Foreign 

190 

Returns 

189 

When Exempt 

189 

When Taxed 


Coupons 

201 

Custom Duties 

201 





XVI 


GENERAL INDEX 


Debts 

Deductions Allowed 
Deductions Not Allowed 
Deposits 
Depreciation 
Directors’ Fees 
Dividends 
Stock 

Dividends Taxable 

Dividends Non-Taxable 

Employees List 

Excess Profits Tax Deducted 

Executors 

Exemptions 

Fiduciaries 

Fire Loss 

Forms 

Fraternal Orders 

Gifts 

History 

Husband and Wife 
Income Taxable 
Income Non-Taxable 
Income to be Returned 

iy 2 % 

3 % 

6 % 

Individuals 

Partner 

Returns 

Who Subject to Tax 
Insurance 
Interest 

Interest Payment List 

Inventory 

Judges 

Living Expenses 
Living Quarters 
Lodges 
Losses 
Margin 

Masonic Organizations 
Merchants 
Mortgages 
Partnerships 
Limited 
Returns 


United States Massachusetts 

201 

187, 201, 202, 205 

189, 200 
202 
203 
203 
203 
203 
203 

203 
190 
202 

204 

205 

192, 204, 206 

206 
197 
206 
206 
181 

190, 206 
182,184,207 

186, 208 
185 

185,208 
185, 208 
184, 207 
181,189,191 
217 
217 
181 

209 
202 
190 

210 
210 
211 
211 
211 
211 
211 
211 
211 
211 

183,189,192, 211 
210 
192,217 



general index 


XVII 


Salaries 

Transferable Shares 
Penalties 
Pensions 
Pledge 
Professions 
Profits 

Profits and Losses 
Rents 
Returns 
Corporation 
Individuals 
Information for 
Partnership 
Rights 
Royalties 
Salaries 
Savings Banks 

Stock Dividends—See “Dividends” 
Tax 

How Figured 

1 %% 

3 % 

6 % 

Who are Subject 
Trust Companies 
Deposits in 
Trustees 
Trust Funds 
Withholding 


United States Massachusetts 
220 
214 
214 

214 

215 

215 

216 

66 216 
217 
189,217 
189 
189 

191,192,193 
189 

219 

220 
220 

202,220 


184.221 
185, 221 
185, 222 

185.222 
184 
181 
222 
222 
223 

223 

224 


MASSACHUSETTS INHERITANCE TAX 247 

History of 247 

How Figured 248 

Returns Required 250 

Who are Subject 247 

MASSACHUSETTS LOCAL TAX 224 

Corporations 224 

Individuals 224 

Partnerships 224 

Tangible Property 224 

MAY, TAX SUGGESTIONS FOR 10 10 

MORTGAGE INTEREST 46 212 

MOVING PICTURES 180 

MUNITIONS 180 




xvni 


GENERAL INDEX 


United States Massachusetts 

NOMINAL CAPITAL—See “Federal Excess 
Profits Tax” 

NORMAL TAX—See “Federal Excess Prof¬ 


its Tax” 


NOVEMBER, TAX SUGGESTIONS FOR 

11 

11 

OCTOBER, TAX SUGGESTIONS FOR 

11 

11 

OUT-OF-STATE TAX BILLS 


226, 229 

OWNERSHIP CERTIFICATES 

34 


PAPER PROFITS 

12, 51 

12 

PARCEL POST—See “Federal Stamp Tax” 

PARLOR CAR 

180 


PARTNERSHIPS 

Federal Excess Profits Tax 

122,155 


Federal Income Tax 

49, 92 


Insurance of Partner 

80 


Invested, Capital 

122,125,155 


Mass. Income Tax 

183,189, 

192, 211 

Mass. Local Tax 


224 

Nominal Capital 

125 


Returns, Schedule of 

6 

6 

Salaries 

125 

125 

Taxes, Schedule of 

6 

6 

Transferable Shares 


214 

Withholding at Source 

101 


PATENTS, DEPRECIATION OF 

89 


PENALTIES 

Federal Income Tax 

50, 59 


Mass. Income Tax 


214 

PENSIONS 

71 

214 

PERSONAL EXPENSES 

78 

210 

PHYSICIANS—See “Professions” 


PLAYING CARDS—See “Federal Stamp 
Tax” 

POSTAGE—See “Federal Miscellaneous 
War Taxes” 

POWER OF ATTORNEY—See “Federal 
Stamp Tax” 

PREMIUMS—See “Insurance” 

PRE-WAR PERIOD 139 

PROXIES—See “Federal Stamp Tax” 



GENERAL INDEX 


XIX 


United States Massachusetts 

PROFESSIONS 


Federal Excess Profits Tax 

115,125 


Federal Income Tax 

51,81 


Mass. Income Tax 

215 

PROFITS AND LOSSES 

51,85 

216 

Deductible 

51 

216 

Not Deductible 

51 

216 

Paper 

51 

216 

Trade 

PROMISSORY NOTES — See “Federal 
Stamp Tax” 

PROXY—See “Federal Stamp Tax” 

PUBLIC UTILITIES—See “Federal Mis¬ 
cellaneous War Taxes” 

51 

216 

REAL ESTATE 

52 

216 

Rents 

RECEIVERS—See “Fiduciaries” 

52 

217 

RENTS 

52 

217 

Information at Source 

44 


REORGANIZATIONS 

153 


REPAIRS 

RETURNS 

87 


Accrual Basis 

82 

202 

Agent, By 

59 


Brokers 

Corporation—See “Corporations” 

168 


Federal Capital Stock Tax 

6,173 

6 

Federal Estate Tax 

6,176 

6 

Federal Excess Profits Tax 

6,118 

6 

Federal Income Tax 

6, 22 

6 

Federal Undistributed Profits Tax 

6,113 

6 

Fiduciaries 

6,98 

6 

Husband and Wife 

42 

207 

Importance of 

7 

7 

Individual 

6 

6 

Mass. Corporation Tax 


230 

Mass. Income Tax 


189 

Mass. Inheritance Tax 


25 

Mass. Local Tax 

Partnership—See “Partnership” 


224 

Schedule of Annual 

6 

6 

RIGHTS 

Transfer of—See “Federal Stamp Tax” 

72 

217 



GENERAL INDEX 


XX 



United States 

Massachusetts 

ROYALTIES 

54 

220 

SALARIES 

124,126 

220 

Additional 

13 


Information at Source 

44,106 

190,200 

Judges’ 

55 

215 

Living Quarters 

55 


SALES, PROFITS AND LOSSES ON 

51,85 

216 

SAVINGS RANKS 

46 

220, 202 

STAMP TAX—See “Federal Stamp Tax” 



SEPTEMBER, TAX SUGGESTIONS FOR 

11 

11 

STOCK 



Assessments on 

81 


Bonds 

71 


Dividends—See “Dividends” 



Losses—See “Profits and Losses” 



Original Issue—See “Federal Stamp 



Tax” 



Returned to Corporation 

158 


Rights 

72 

217 

Transfer—See “Federal Stamp Tax” 



SURTAX 

20,21 


TAXATION IN 1918 

5 

5 

TAXES, THE DIFFERENT FEDERAL 



AND STATE 



Federal Capital Stock Tax 

172 


Federal Estate Tax 

174 


Federal Excess Profits Tax 

114 


Federal Income Tax 

14 


Federal Miscellaneous War Taxes 

178 


Federal Stamp Tax 

178 


Federal Undistributed Profits Tax 

111 


Mass. Corporation Tax 


225 

Mass. Income Tax 


181 

Mass. Inheritance Tax 


247 

Mass. Local Tax 


224 

Schedule of Annual 

6 

6 

TAX FREE COVENANT BONDS 

57,103 


TAXPAYER’S CALENDAR 

8 

8 


TAX RETURNS—See “Returns” 
TEACHERS—See “Professions” 
TELEPHONE AND TELEGRAPH — See 
“Federal Miscellaneous War Taxes” 





GENERAL INDEX 


XXI 


United States Massachusetts 

THEATRES—See “Federal Miscellaneous 
War Taxes” 

TICKETS — See “Federal Miscellaneous 
War Taxes” 

TOBACCO—See “Federal Miscellaneous 
War Taxes” 

TRANSFER OF STOCK—See “Stock” 

TRUST FUNDS 
TRUSTEES 

UNDISTRIBUTED PROFITS—See ‘ 
eral Undistributed Profits Tax” 

WAGES—See “Salaries” 

WIFE—See “Husband and Wife” 

WITHHOLDING AT SOURCE 

Exemption Claim 
Fiduciaries for Non-Residents 
Foreign Corporations 
Non-Resident Aliens 
Partnerships 
Release for 1917 
Returns 

Tax Free Covenant Bonds 


“Fed- 


223 

223 


101 

101 
101 
101 
101 
101 
104 
104,105 
103 


224 


YACHTS—See “Boats” 










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